Contrary to popular belief, this isn’t how most people think.
The thing about reading business publications is that you are transported to an imaginary world where nothing really exists outside of the boardroom. It’s all quite interesting when it’s a board game, I suppose, but when real life bleeds in, folks get uncomfortable and start complaining about the people who rudely harshed all over their Wall Street euphoria.
You’d think that the biggest problem with the subprime mess was that already-wealthy investors would lose their bonus–which is of course, really, truly urgent–but that the everyday people caught in the vice-like squeeze of the credit trap and the quicksane of stagnating wages and inflated costs were just a few exceptions. You’d also think that the moves of business leaders and lobbyists had zero to do with this mess.
Recently in the press there’s been all kinds of stories about the subprime mess with (finally) some concern about the fallout–the foreclosures, bankruptcies, the private equity funds that are now on shaky ground, and the burden of debt on people, and the suspiciously high rate of exotic mortgages for people of color–despite their good credit, they were pushed into dubious mortgages at a higher rate than Whites when they refinanced.
And make no mistake, this is nothing to sneeze at. I’ve always been skeptical of the unusual mortgages out there such the adjustable rate and interest only mortgages. As Amanda pointed out, the subprime mortgage industry drove housing prices into the stratosphere. Unfortunately, enough people plugged them (hell, enough banks pushed them) with the result that people signed up and found themselves in the middle of a debt hurricane a few years later.
And we can wag our fingers at the people who signed up for these loans, sure, but we’d be forgetting that they’re forced into a false choice: a condominium or a starter mansion, with the smaller houses much older and in need of repairs. Towns push for condos because they are less likely (for now) to attract families with kids;they like 55-plus communities for the same reason (heck, kids aren’t allowed there except as visitors), and they like McMansions because those are the homes that will generate the tax revenue the towns deem appropriate for paying the kids’ way. So families looking for homes can cram everyone into a condo, buy a still-expensive older (and small) home that needs a lot of work, or an even more expensive, obscenely huge home. Given the price of even smaller, older homes (and the price of the added maintenance/repairs), it’s disingenuous to insist that people just buy a smaller house (and if the people I’ve talked to are any indications, most folks aren’t that enamored of the McMansions, anyway). Small homes in my area go for $250,000 to $300,000, and those are fixer-uppers.
In our preaching, we’d also be leaving out the private equity firms that invested in Collateralized Mortgage Obligations (CDO’s) and Collateralized Debt Obligations (CDO’s). Basically, they invested in debt, they bought the debt, and they banked on the fact that people would a) pay off their mortgages in thirty years and b) people would always pay something towards their debt. What happened, though is that that the weight of debt got too huge for a lot of people to bear, and we had foreclosures and bankruptcies and defaults. (Well, maybe not as many bankruptcies, thanks to the bankruptcy bill.) This led to two hedge funds run by Bear Stearns going kaput and the industry being thrown into turmoil.
Ordinarily, I’d snigger at a hedge fund or a private equity firm that lost a huge chunk of change to this sort of dubious investment–as far as I’m concerned, they’re preying on people and this is an example of what goes around, comes around. Unfortunately, there are people closer to home who lost a lot thanks to this.
Claudia Vinson Johnson’s savings were decimated as risky mortgage-backed securities in her account were devalued and her investments were sold to meet margin calls. The broker who put her into the high-risk investments: Steven Shrago, her neighbor across the street.
“One day you wake up thinking you have a little bit of financial security and by mid afternoon, you have none,” she said. To say the least, it’s put a chill in a once neighborly relationship. Shrago, who didn’t respond to attempts to contact him, keeps his blinds closed.
Johnson is one of dozens of clients of Brookstreet Securities Corp. who suffered huge losses in June on risky debt securities that were sold to them as safe investments. Brookstreet, which was based in Irvine, Calif., collapsed. The brokerage had 40 offices in Florida, including six in Pinellas County, one of which Shrago ran out of his home on Second Street N in St. Petersburg.
Only a few of those offices promoted the high-risk investments, but that was enough to bring down the company, said Coral Springs lawyer Scott Silver, who is representing Johnson and other Brookstreet investors.
Now, we can wax righteous about personal responsibility and wag our fingers over people choosing such risky investments. But bear in mind: these are not trained investment professionals. They took the advice of brokers–people we imagine to know what they’re talking about.
The thing about our retirement system is that it requires we save and grow our own money. This would be fine, but investing is not exactly a cake walk for most people, who feel overwhelmed by the choices and the risk. Successful investment managers do this as a full-time job, and most of us simply don’t have that time. You go into a financial services company and many times, the representative will try and steer you away from something safer (like index funds).
And let’s face it, calling a CMO or CDO a safe investment is a lie. Plain and simple.
Now, a lot of this debt insanity started in the 1980’s with the credit card industry. That opened the floodgates for debt as the American Way and then debt as necessity.
On the regulatory side, in 1978, you have the U.S. Supreme Court deciding that banks could export their interest rates. They used to have very effective usury laws, caps on what you could charge for interest, and in 1978 that was effectively obliterated. So, suddenly, credit card companies like Citibank in South Dakota could base themselves with no usury laws, no rates, no caps, and they could charge whatever interest rate in any state in the country that they wanted to. So that’s when credit card lending became very profitable.
As for access, the game just became giving as many people credit cards as [you] possibly could because you could charge any price that you wanted to. In fact, you could not only charge whatever price, you could change the price. It’s the only product where you can change the price after someone has bought it.
Granted, it’s easy to insist that people live within their means, but when rents and mortgages are sky-high, health care costs escalate, school tuition goes beyond the stratosphere, and incomes remain dead in the water, it should be no shock that many people are in hock with student loans, credit card debt, and (often refinanced) mortgages.
It used to be that it was difficult to get a credit card or a mortgage. You used to have to get a store card and prove that you’d be really good and pay it off before you could get a MasterCard. No more. Credit card applications and offers collect like dust in an attic these days. I know people who got offers before, during, and after filing for bankruptcy. They still get these offers.
And why not? Credit cards no longer just get a fee from the merchants where you use them and some high interest if you don’t pay them. A lot of them don’t bother to charge an annual fee anymore when there are so many new and inventive ways to suck money out of people. They can jack up the interest at any time. They will charge fees for late payments (and then interest on those fees). They’ve become very good at extorting money.
It’s laughable that now the media has realized that these kinds of loans and the constant pushing of credit is a bad business move by the banks and credit card companies. In the height of the frenzy, it was difficult to find people questioning the wisdom of the big banks and lenders. Even now, most pundits assume that this happened in a vacuum; they assume that people are just frittering money away on lattes and Manolo Blahniks and refuse to acknowledge that yes, real wages have actually stagnated while the costs of housing and education have skyrocketed. People graduate from college with a huge student loan burden (grants aren’t so easy to get, and tuition has gone up far beyond proportion since the seventies). Families with kids also have to factor in child-care costs; if those families (or childless couples or singles) have older relatives who need care, that increases the costs and decreases their free time. The cost of health care is prohibitive–it was a leading reason why people went into bankruptcy in the first place.
We have this messed up system because of lawmakers who worshiped at the altar of deregulation, policy makers who thought that Ayn Rand was a genius economist, and a current government that said good Americans shop, and a good governance means always breaking out the plastic and running up more debt. It’s not exactly a comfortable place to be. And while there are plenty of people out there who aren’t responsible, there are far more who are. I’m not eager to blame them when the banking and finance industries profited off of their misery.
85 Responses to “The house of cards tumbles down”
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Holy cow, I was just going to comment on how I posted a comment to this last night, but then the post disappeared, and now the post and my comment are there.
Eeek! The tubes are scaring me.
I know people who got offers before, during, and after filing for bankruptcy. They still get these offers.
*Waves hand in the air*
That’s me right now.
Credit cards no longer just get a fee from the merchants where you use them and some high interest if you don’t pay them. A lot of them don’t bother to charge an annual fee anymore when there are so many new and inventive ways to suck money out of people. They can jack up the interest at any time. They will charge fees for late payments (and then interest on those fees). They’ve become very good at extorting money.
I currently have no credit cards, because I’m not very good with them. (I love my ATM card with a Mastercard logo on it.) I was thinking about getting a credit card through my bank just so I can start building up my credit rating again. Then I read in the fine print that, sure, the interest rate is 9.99% … untii you’re late with a payment. Then it goes to 33% interest FOREVER.
Fuck that shit. I’ll stay with my cash-payment life, thank you.
tuition has gone up far beyond proportion since the seventies
Not only has it gone way up since the seventies, it’s gone way up over the last 5-10 years. 9 years ago, when I was looking at colleges, among them some private liberal arts schools, the upper stratosphere of tuition costs was $25-30K. Now one of my coworkers has a daughter looking at some of the same sorts of schools, and the average price (not the top, but the average) is in the vicinity of $50K. Per year. Meaning that if you finish in 4 years, that’s a $200,000 undergraduate education. Had I attended one of the most expensive schools in the country 8 years ago and spent a full 4 years there, my BA would have come to something like $90,000. This is over less than a decade.
Of course, most people don’t attend such schools, and many who do get a decent amount of financial aid. But even a “decent” amount of aid will leave you in, minimally, tens of thousands of dollars in debt. At age 22, when you graduate. Even though very few jobs are available at a post-undergrad entry level that pay more than $20-30K per year. Meaning that I have a lot of friends who pay more than half their income to student loans and still owe in the vicinity of $100,000.
I also know grad students and former grad students who are in more than a quarter of a million dollars worth of debt. And these are not future corporate lawyers and neurosurgeons who’ll be paying that kind of money off in a couple of years.
I’m finding it hard to imagine us sustaining a system like this for very much longer.
I have horrible credit, student loans that are about to default, and I still get credit card offers.
You’d think I’ve proven that I am a bad credit risk, but these people just don’t learn.
The new thing with credit card companies — they will readjust the interest rate not only if you’re late with a payment to them, but if you’re late with a payment to someone else.
I just got rid of a card I’d been using for years, because they started giving me only two days to pay the bill before slapping on a late charge. Trouble is, I’m sure all the other companies will be doing the same thing within a year. Free market, my fanny.
I get re-finance offers on my home loan on a weekly basis, by phone (do not call list!) and mail (landfill). I got my home loan when the rates bottomed out in 1999, through the veterans administration (disabled vet) and the California Home Assistance Financial Association (CHAFA). When asked if I want to refinance, I always respond “If you can’t beat a 5 1/4% fixed rate, hang up now before I start yelling at you.”
Now, I’m in good shape. My pension covers my mortgage, and my job pays the other bills. But I feel sorry for the poor slobs who got tricked into a variable rate mortgage (starting at a low, low 3% and increasing by only .1% per day!) to get a home they couldn’t afford with a honest loan.
And now that the bankers have driven the poor slobs into bankruptcy, they’ll get a government bailout. Welfare for billionaires, again.
I get refinance offers by mail and I don’t even own a home. That’s how broadly they’ve been sending those letters out.
I used to get calls, but now I’m on the Do Not Call list. Ahhh … much better.
MAJeff: “this year (hopefully my last)” - you mean in school, right? I hope?
Did anyone see Thomas Sowell’s column this week about how it’s all the fault of the smart growth-type regulations driving up housing prices. I’ve been hoping in vain to find a takedown of that line of thinking somewhere like Pandagon or Tapped or wherever.
I get refinance offers by mail and I don’t even own a home.
I’ve been getting them and I live in an apartment building–not condos, mind you. A straight up apartment building.
And don’t count on the 9.9% interest forever even if you never are late on a payment.
Due to major student loan debt, I - for about ten years - was doing what MAJeff was doing. My credit card was convering the distance between what I could make in MA and what I needed to survive. And yes there was a huge gap. Last year, I took a new job in another state with a huge jump in pay and started to really make a dent in my debt. I haven’t used my credit card in a year, except to purchase one plane ticket, and have been paying twice and sometimes three times the minimum on my credit card. I have had a 9.9% interest for over ten years. I have had the same card (CapitalOne) for more than ten years. I have never been late. Not once.
Anyway, things were going swimmingly. I was looking at being credit-card debt free in three or four years. And, then, last week, I got a bombshell. I got a notice from CapitalOne saying that because interest rates have gone up so much in the last few years, they were increasing my interest rate to nearly 16% - despite the fact that I have had a 9.9% interest rate back when average rates were at least 19%. They presented me with two choices. Accept it. Or freeze my account and never be able to use my card again. When I called to complain, the customer service person basically told me CapitalOne was getting rid of people like me, who never have a late payment, because they don’t make enough money off of us.
So I am freezing my account, transferring as much as I can to one of those 0% for twelve month offers, and am going to buckle down like a penny pincher and divest myself of all credit card debt. Every card is now cut up, which has been somewhat of an emotional thing for me, but I would rather not have access to emergency money than worry about if a damn credit company is going to screw me for being too responsible.
CapitalOne - It is not what is in my wallet anymore!
Hi, MA Jeff. I try to set the time stamp, but with every post it doesn’t take. I have to reedit it and save it once it posts up. Arrgh.
I owe $40,000 and I just accepted a job at $30,000 in a non-profit (the debt was for graduate school). I have about $6,000 in credit card debt for books/school related expenses as well. My interest rate on my credit card debt is between 2.99-5.99%. The thing about credit card debt is that you have to keep on top of your payments. I always pay the day after I receive my statement (a full 20 or so days before its due and I pay online so that I see its been accepted). Credit cards are not the devil, but financial education is key when managing debt. Since my job is not that well paying, I’m also going to teach 2 or so classes per semester, making an additional 6,000-8,000 per year. I’m going to be able to pay off my student loans is five years instead of 10, if plans work out and illness/injury don’t strike. I’m not happy about the debt, but compared to many I’m very lucky. I was accepted at Harvard, but I didn’t go because as a Divinity student going into academia/non-profit, I couldn’t afford to pay that off, so I went to Vanderbilt and got a much better deal. I’m glad that I had access to cheap credit in the form of credit cards, because I can’t live off of Ramen and recyled coffee grounds. Of course, I say this all coming from a position of privilege–white privilege, middle-class upbringing privilege, and educational privilege (not many get to fret over Harvard vs Vanderbilt). Credit, banks, and mortgages need to be available to everyone (many inner city neighborhoods lack banks, but instead have check cashing centers owned by those banks) and these crap variable interest-only loans should be illegal. Everyone, rich or poor should receive non-biased financial counseling in school, starting in middle-school and classes should be available before buying a home. Maybe even mandatory (for rich and poor, Trump maybe you need to listen too). peace
When I called to complain, the customer service person basically told me CapitalOne was getting rid of people like me, who never have a late payment, because they don’t make enough money off of us.
You know what credit card companies call people who pay off their balance at the end of every month?
Deadbeats.
I wish that was a joke.
I recommend the book “The Two-Income Trap” by Elizabeth Warren, and the documentary “Maxed Out”. They’re both really good (also scary).
I found out a neat trick - call your credit card company every month and ask them to lower your interest rate. If you’ve been up-to-date with your payments for six months, they’re sometimes able to do it upon request.
Of course, the really neat trick would be to change the system. It’s sole purpose is to get you into debt and keep you there, then make it harder for you to declare bankruptcy when your spouse dies or you have a car accident.
We’ll see how the diss work goes this year before answering that
Sheelzebub…that’s kind of what I figured, but it was a little odd last night to post a comment and then have the whole post disappear
I always pay the day after I receive my statement (a full 20 or so days before its due and I pay online so that I see its been accepted). Credit cards are not the devil, but financial education is key when managing debt.
You can easily get stung by credit card policies even if you do stay on top of your payments.
We had issues with one card because we paid our bill too early: they would apply the payment to the previous month, even though we included the “return” portion of the bill with the payment. So they recorded us as making two payments in one and no payment then next month. This happened nearly every other month (because of the 30 vs 31 day thing). So when we thought we were paying extra on the card every month, they were jacking up our interest rate, charging us late- and no-payment fees, and ruining our credit rating.
Several years later, another card raised our interest rate from 9% to 21% because of a “late payment”…to our home insurance company. Our homeowners insurance is paid out of escrow, and the escrow company screwed up and sent the payment to the wrong company. We spent two weeks of bitching to straighten that whole mess out, get our insurance resinstated, and clear our our credit record. Thirty days later we find out that our credit card rate went up over 200% because of a mistake that we had no control over and had already corrected!
Needless to say, we don’t have either of the cards anymore.
These numbers make me want to throw up a little every time I hear them. Is that seriously what tuition costs down there? Please tell me that’s at least tuition + dorm + books + meal plan… please? That’s more money than I’d make in two years. TWO YEARS. But up here in Canada, I’m a self-supporting, debt free student at a decent university on $24k a year. I even have a little in the way of savings. I just cannot fathom choosing university if it cost that much.
The price of everything has gone up. Groceries have gone up a staggering amount. Thanks to a bout of breast cancer, I’m trying to eat as much organic / all natural as possible. I pay $5 for a half gallon of organic milk. We’re all convinced now that paying $3 for a gallon of gas is a good deal.
When I’m struggling to put gas in the car to get to work and to put food on my table, Sallie Mae can go jump. I’ve resigned myself to paying on my student loans for the rest of my life.
We love our credit union because they really don’t use predatory practices like these. If there’s any way you can join one, do it. We have both our mortgage and our (one and only) credit card with them.
Now, they wouldn’t loan us money they weren’t sure we could afford, so we jumped through a lot of hoops to get where we are, but we knew we could afford what we had, and that they wouldn’t go randomly changing their rates on us once we had a card and so on.
My in-laws got us the Idiot’s Guide to personal finance in your 20s and 30s. As though a book about personal finance is going to make things better. It’s not. People don’t realize that financial advice is meaningless when you live on a grad student stipend. The only thing that will make our financial situation better is to make more money. It doesn’t take a genius to invest wisely and manage money, it takes money to do those things. Finger-wagging guides to personal finance make me want to scream.
Credit cards are a viscious cycle, too. I don’t have $500 sitting around to buy books or pay student fees, so I use the credit card. Then I have to pay off the credit card at 18% interest, so the next semester I still don’t have $500 sitting around to pay student fees, so I use the credit card. And if it’s a choice between using the credit card to buy groceries and going hungry, I buy groceries. And so on.
I’m paying $200 a month in credit card bills, $400 a month in student loans, and $200 a month in back tuition I owe my university. I make $1600 a month, and I cannot afford to live on my own. (Trust me, I’ve done the budgeting. I can’t.)
I keep hoping that I’ll get a job soon where I’ll be able to afford to move out of my parents’ house, because as much as I love ‘em, it’s getting old.
I used to regularly get calls that started with “Hello, this is the mortgage department…” - when you’re a first time homeowner, you damn well listen after that kind of an opener. Of course, it turns out that the “mortgage department” has nothing to do with the holder of *your* mortgage, and are just trying to sell you a home equity line of credit. Now that I no longer answer the phone I still get messages from these assholes, but I don’t listen to my messages either, so no worries
We got the same screwing over. We weren’t told we could freeze the card, but that we’d have to pay and close the account within 30 days. My wife knows our account was specifically targeted because we pay much more then the interest due every month. Both of us came out of college with massive debts.
Mnemosyne,
You mention your Mastercard Debit bank card. Be careful with those too!
Keith and I were $300 overdrawn in our checking account this week because of the “extra 20%” rule and it seems that more and more businesses are doing that extra 20%. Everytime we think we’ve figured out who does this and avoid using their business unless we have cash in hand, we find out someone else is doing so too. And we end up overdrawn, although we’re not REALLY overdrawn, but we certainly will be once the $30 NSF fees are deducted…
17.1 Billion, like Amanda said. I donated my $300 worth. Of course, this’ll make grocery shopping tough this week…
KLK wrote:
In New Castle County, Delaware, that’s exactly what happened: the county government passed restrictions on new developments, lowering the number of homes that could be built per 100 acres, and requiring that all news homes pay for their own utility hook-ups. The first restriction meant that builders had to seek more profit per home, and the second added over $20,000 to the cost of a new home. This wound up pushing the Toll Brothers McMansions-type homes; I lived in a 150 year old farmhouse completely surrounded by three Toll Brothers subdivisions, where new houses started at $350,000.
I owe $40,000 and I just accepted a job at $30,000 in a non-profit
I really can’t stress this enough to my friends: don’t work for non-profits.
That and don’t pay for a graduate degree unless it’s an MBA, MD, or JD. The opportunity costs of grad school are bad enough as it is. I had to pay for my last semester of graduate school, and while the loan is manageable, having it hang over my head is still pretty painful.
One thing I never could understand is why anybody who wasn’t intending a two-year flip would have taken an adjustable-rate mortgage in 1999-2005, because the fixed rate mortgages were so low.
Or, at least I couldn’t understand it until I met someone around here. His credit was marginal, and the ARM was all he could get. Now his mortgage payment has risen about $200 a month, and he’s having a rough time.
But while the sub-prime loans are new, the phenomenon is not. Back in the eighties, a lot of people bought houses that were out of their price range, with interest rates which were too high, because the inflation on home prices was so ridiculous; the concept was that if you could just hang on for a couple of years, all of a sudden you’d have a better house than you could otherwise afford, for which you paid a price that became a bargain. Then inflation took a drastic downturn, and a lot of people found themselves stuck with houses they couldn’t afford, and some people were even “upside-down,” owing more than the home was worth.
The thing that always gets me in trouble is that my bank automatically pulls money from the credit card when my checking/atm balance isn’t enough (you know, instead of saying ‘hey idiot! You can’t afford those video games/groceries this month! Put ‘em Back!’). Then they charge double the interest on these ‘overdraft’ amounts.
Also, my health insurance just increased my prescription copay by 500%. In the middle of the year, when I can’t drop their crappy coverage for another 6 months.
There is no question that some (hell, probably most) lenders are engaged in predatory and deceptive tactics. There is also no question that legislation can do something about the worst of these abuses. But what legislation cannot do is make it profitable to lend money to poor people at low interest rates, because a sizeable percentage of poor people default on their loans. (Some middle class and rich people do, too, but at lower rates.)
So, if we pass legislation that really limits the predatory practices of lenders, the result may well be that some segments of our society will not be able to get loans or credit cards, period. (This was, in fact, the case back in the 1950s, which was why the Mafia was able to successfully get into the loan sharking business.)
No, I am not a follower of Ayn Rand, but we do have to watch out for the law of unintended consequences.
s that seriously what tuition costs down there? Please tell me that’s at least tuition + dorm + books + meal plan… please?
I can’t be sure because I’m not the one writing the checks (this is my boss, whose daughter is in the midst of the college search), but from what I understand, he’s talking about tuition. Or perhaps tuition/fees/dorm. Definitely not tuition + all other extras.
Though I have to say that this is for private liberal-arts oriented colleges. I went to a city school and paid exponentially less, and am lucky to have no debt thanks to very generous parents and working to pay my own living expenses. My (public) university cost less than my (private parochial) high school, in fact.
Keith and I were $300 overdrawn in our checking account this week because of the “extra 20%” rule and it seems that more and more businesses are doing that extra 20%.
Yikes! I haven’t run into that very often, at least not with companies that don’t tell me they’re doing it. (I need my yarn fix from DiscountYarnSale.com, even if they do pre-charge!) I’ll definitely keep a closer watch for it, though.
Is this what they call a “pre-authorization” or is it something new and fun I have to watch out for?
Besides all the problems others have mentioned with this (student loans, predatory lending practices, overall lack of money), even if you can afford to do this, it’s still not beneficial. Renters almost universally require credit checks now (at least in SoCal), and many simply will not rent to a person who doesn’t have a credit rating (even if it’s because you only use cash, and you can demonstrate that you’ve been fiscally responsible in the past), or whose credit rating does not show much activity. We found that out pretty painfully this year.
(And don’t even get me started on all of the other illegal and predatory things that were required, and how amazingly hard it is to get a place, even when everything is languishing. We had to disclose our credit card numbers, checking and savigs account numbers, current balance, projected balance, and loads of information like that, in addition to the usual FICO score/full credit report/SSN/DL etc. stuff. And we had one landlord refuse to rent to us because we asked him to shred the information when he was done with it. He said he couldn’t rent to anyone with such “trust issues.”)
Not only that, but a lot of companies are requiring credit checks before they hire employees. Again, you may be the most fisally responsible person in the world with a predilection for only using cash, but if you don’t show up in their database as a result, you will be penalized.
True, true. This reminds me of what Amanda has been saying about the red herring of criticizing personal virtue in the context of global climate change. It’s tempting to pull out the personal responsibility card on that matter as well: “if you want America to use less oil, why don’t you stop driving so much?” and so on.
Obviously, the economy differs from the environment, in part because we individuals can get ourselves into (or out of) a serious but localized financial wreck through our personal choices, whereas most of us don’t cause severe environmental effects limited to our personal space. But there’s a similarity in the news cycle and the general discourse.
Keeping our focus on the poor choices of the individual (as the folks in the boardroom and the news room would have us do) — or even on the predatory practices of specific institutions — allows us to forget that this is a systemic failure, the result of both collective action and of governmental policies.
As I understand it, the “extra 20%” thing happens a lot at gas stations if you use your debit card at the pump. They tack on an extra $50 to what you buy to be sure of…heck, I’m actually not sure why they do it. But it causes a LOT of people to become overdrawn.
Seems like the *only* way to be safe is to pay cash on the barrelhead for everything. Until they stop accepting cash…
Also, remember to put this in context:
many people are having problems because they took out variable rate mortgages and their rates have gone up a lot recently.
Ok, they probably should have assumed that this could happen and planned for it, but why did interest rates go up?
It’s because the Fed increased their rates. Why?
They want to keep inflation in check. Who does this help and who does it hurt?
Obviously it hurts these people (not only did it directly increase their payments, but inflation would mean they would be paying off their loan with inflated dollars–in effect it would reduce their payments) and it helps banks and the rich who are more likely to invest and save.
Hmm.
Keeping our focus on the poor choices of the individual (as the folks in the boardroom and the news room would have us do) — or even on the predatory practices of specific institutions — allows us to forget that this is a systemic failure, the result of both collective action and of governmental policies.
I emphatically disagree. People need to be educated, empowered, and learn about good financial decisions for themselves. It’s total folly to wait around for the “system” to change. Take charge and start living within your means. (Of course, this doesn’t apply to people screwed by uncontrollable circumstance, like medical bills.)
Entolmologista:
Thank you. I could never quite put my finger on why I feel the same way, and you’ve expressed it quite nicely here. It’s the same reason those MSN Money columns on how you can still save money if you’re broke annoy me - they just end up saying, in a roundabout way, “make lots of cuts”. Well, duh.
Constantine:
Understandable advice, though I’ve already made the mistake of going many, many, many thousands of dollars into debt to pay for a Ph.D. Though I can’t think of any work that having an MBA, or an MD, or a JD would help me get that I would like.
But it’s my hole, and it’s up to me to get out of it. I will say that I’ve decided against an academic career; it’s really a losing proposition: the jobs are few, the competition is intense, you have to be willing to be a nomad, and the pay is, well, not that great. It won’t be easy to parlay my Ph.D. into a non-academic job, but it’s not impossible.
Entolmologista:
Thank you. I could never quite put my finger on why I feel the same way, and you’ve expressed it quite nicely here. It’s the same reason those MSN Money columns on how you can still save money if you’re broke annoy me - they just end up saying, in a roundabout way, “make lots of cuts”. Well, duh.
Constantine:
Understandable advice, though I’ve already made the mistake of going many, many, many thousands of dollars into debt to pay for a Ph.D. Though I can’t think of any work that having an MBA, or an MD, or a JD would help me get that I would like.
But it’s my hole, and it’s up to me to get out of it. I will say that I’ve decided against an academic career; it’s really a losing proposition: the jobs are few, the competition is intense, you have to be willing to be a nomad, and the pay is, well, not that great. It won’t be easy to parlay my Ph.D. into a non-academic job, but it’s not impossible.
Dr. Caligari is on to something here, I’m afraid. Here in Illinois, legislators who were upset about predatory lending passed a law saying that anyone who lived in certain areas and had credit scores below a certain level had to take a course in remedial personal finance before taking out a home loan.Well, as you can imagine, a disporportionate number of these folks turned out to be minorities, and cries are being raised about racist paternalism. The bottom line is, aside from mandating clear communication of relevant information about a loan, you can’t do much to protect people without either restricting their credit or, at the least, annoying them.
JohnL, the variable rates on credit cards are based on a multiple of the prime rate. If inflation, based on, say, the prime rate, goes up by 2%, your interest rate is based on 1.5x or 1.75x the prime rate, so your payments go up 3% or 3.5%.
I got burnt badly on credit in the 1980s, mostly through co-signing car notes and student loans for needy relatives and useless friends, respectively. I *finally* got out from under my credit cards around 2000. I keep one Mastercard that I’ve had for 22 years and charges 11%, and I charge about one thing a year and pay it off in a month or two. I talked my mother into cutting up the Home Depot and other store cards and paying off some E-Z Loan shark. She’ll be out of debt by this November.
This is just nuts, where the profits accruing from a revolving balance at the once fantastic interest rate of 18% have taken a backseat to late fees and the other tricks described above.
So I live in Amsterdam, where your credit is good if you *don’t* have a credit record, because you only have one if it’s bad (and it heals only two years *after* you’ve paid off any bad debts).
I feel like an economic refugee who finally made it to a safe land, where banks don’t pay you interest but they don’t charge for online payments, penalize you for being overdrawn or charge for using other banks’ teller machines. (I keep Bank of America account for a few bills, so I can compare.) But now my bank (ABN-AMRO) is a juicy target and one of the suitors is Barclays of the UK. UK banks are about as bad as US ones when it comes to fees.
The mortgage crisis, whether acute or not, has hit a couple of German banks that couldn’t stay away from that high-fructose corn syrup pot of debt securities. Dunno whether that will go any further, but it’s worrying. The ECB loosened credit to European banks like BNP-Paribas (Fance) in case of liquidity crunches. Okay, I heard that one on BBC just now.
Biden deserves to smoke a turd in hell for co-authoring the notorious bankruptcy bill. Any Democrats who voted for it deserves a primary challenge as if they’d voted for the Iraq war.
How about public school tuition?
In the state of South Carolina, in-state public school tuition has gone through the roof since I started school in 1998.
Clemson University now costs $10,370/yr compared to the ~$3,500/yr it costs back in 1998 (Clemson is in the middle of nowhere on state owned land with relatively no overhead, so I have no idea what the hell they are spending it on.)
The University of South Carolina (Columbia) is a relative bargain at about ~$8200/yr in fees. This is only about double what it was in 1998.
South Carolina also went with a lottery scam that funnels money from the poorest South Carolinians who play the lottery, to the wealthiest South Carolinians who benefit from the merit scholarships the lottery gives out. While the lottery scholarships are very generous on the surface, if you do the math, South Carolina students have actually lost ground from the pre-lottery days at Clemson and gained very little at USC because of the rising tuition.
When I bought my house in 2004, I went with a fixed. When banks are pushing ARM’s, guess which way they expect rates to go in the future?
It turned out to be a mistake since now I am trying to sell it only three years later.
And people like us are the other victims of the subprime fallout. Suckers who had good credit, needed a place to live, and bought a house in an overvalued market who are now trying to sell it. I’ll be lucky to break even after paying the realtor.
But guess who will get the bailout. Not the people losing their homes. Not the people who are losing money on their homes. The billionaires. Truly we have the best government money can buy.
People need to be educated, empowered, and learn about good financial decisions for themselves. It’s total folly to wait around for the “system” to change. Take charge and start living within your means.
That doesn’t do a whole lot of good when your credit card company drops your account because you always pay on time. They are actually penalizing people who make good financial decisions.
Let’s say that you get a better job and can put more towards your mortgage payment and get it paid off earlier. Better check the fine print on your loan, because a lot of mortgage lenders make you pay a penalty for early payment. That’s right, if you try to get out ahead of your debt, they charge you an extra fee.
It’s all well and good to talk about individual empowerment, but when the credit companies are actively penalizing people who do the right thing, what’s left?
Man, you need to watch out for those authorizations. When you rent a car or reserve a room at a hotel…don’t just use the automated checkout. Always make sure you charge something so that the service people have to do something.
Otherwise they leave those charges on your card. They will “drop off” in 2 weeks if they do nothing, so unless you make them do something, they are happy to leave that money on the card.
Where it’s unavailable to you.
I used to have stellar credit, then I married my goofy husband. We’ve got the worst credit now, and the only thing that controls him is his low balance credit cards. But since he travels for work so often, he has to have that available credit available. And hotels and rental cars pre-authorize him over his limit unless he makes sure they finalize the transaction.
The system’s gamed for the wealthy. Which is undoubtedly why our Dear Leader is proposing more tax cuts for the rich.
Renters almost universally require credit checks now (at least in SoCal), and many simply will not rent to a person who doesn’t have a credit rating (even if it’s because you only use cash, and you can demonstrate that you’ve been fiscally responsible in the past), or whose credit rating does not show much activity.
I’ve been lucky so far, because my husband has good credit, and we rent from a small management company (yes, here in So Cal). The fact that I don’t have much of a credit history is probably going to come back and bite us if we ever try to get a mortgage but unless prices drop by at least 50%, we’re renting for the foreseeable future.
Though I have to say that the fact that your credit history has such far-ranging effects even while the credit card companies get to play little games with their rules really makes me MAD! :[ It’s the whole thing of, You need to play by our rules, but we will constantly change the rules, and then penalize you for breaking them, that pisses me off.
When we got married, my husband had $74,000 in student loans and we had about $10,000 in credit card debt. We’ve paid off the credit cards, then gotten more debt, then paid them off, then gotten more . . .
I’m glad my husband got a PhD, but that kind of student loan payment, even at low rates, is almost crippling for us. His friends who didn’t go to grad school are all so much better off right now. It’s sometimes hard to think that it’s worth it.
With the new baby, we’re once again cycling into debt, and it’s so hard to stop that I started a personal finance blog just to motivate myself. It’s been two days - I’m not sure it’s working yet.
I’ve noticed that my husbands USAA card’s interest rate goes up a little bit at a time every few months without any sort of notice or warning. Every six months or so, my husband calls, and they immediately lower it to where it was in the first place. It’s like they’re just trying it out, hoping we won’t notice. It drives me insane!
I genuinely try to simplify my life, be less of a consumer, be more frugal. But I can’t shake the thought that this is a losing game. That no matter how hard I work at it, prices will just keep going up and we’re already so far behind that I’ll never get out of the hole.
suze orman fan, it’s both/and. Of course people need to be educated and take responsibility for their financial decisions, just as they need to be educated and take responsibility for their personal environmental footprint. But in neither case does getting our personal act together change the fact that the system is set up, sometimes quite deliberately, to make harmful choices easier than helpful ones.
I’m not suggesting anybody “wait around for the system to change.” I’m suggesting the system can be changed, though, and it will take sustained, collective effort.
How about public school tuition?
I think this varies by state. When I started at CUNY here in NYC, the tuition was, I think, something like $1500 per semester. Then halfway through, it was hiked to $2000, amid much protest (back in the 70’s, CUNY was free). There was grumbling about another hike when I graduated 2 years ago, so I have a feeling it’s heading into $2500-3000 territory. However, my college, Hunter, is still one of the top rated “bang for your buck” schools in the country, in terms of high educational standards and low tuition prices. And paying $6K per year is nowhere near what you describe for SC, even though if they’re paying that now, tuition has doubled since 2000.
So, to make a long story short, it’s hard for me to guage that because I went to an atypically cheap school. Though it’s likely that even my el cheapo alma mater has doubled since I started there 7 years ago.
Then halfway through, it was hiked to $2000, amid much protest (back in the 70’s, CUNY was free).
And yet the Baby Boomers who had that free tuition will stand there and complain about materialistic kids these days who only care about finding a good job … so they can pay off their college debt.
Sorry, pet peeve reared its ugly head.
When my older daughter applied for MIT, we were told it was $44,000 a year. She actually went to Penn State, which was $10,000 a year, for tuition alone.
I was talking to my students about tuition near the end of class tonight. They pay over $40K for tuition/room/board.
I paid $3k a year back in the early 90s going to a state school, and my tuition was 3X what in-state students were paying at the time (damn Iowans and their refusal to do reciprocity with MN–every other state bordering us did).
My office mate and I have a bumper sticker in our office: “Attacking State Colleges is Class Warfare“
I was talking to my students about tuition near the end of class tonight. They pay over $40K for tuition/room/board.
I paid $3k a year back in the early 90s going to a state school, and my tuition was 3X what in-state students were paying at the time (damn Iowans and their refusal to do reciprocity with MN–every other state bordering us did).
My office mate and I have a bumper sticker in our office: “Attacking State Colleges is Class Warfare“
OK, I swore i only hit submit once.
Because extending utility connections and increasing transmission capacity is free when done by the local county, and so adds nothing to people’s tax bills. Extending and widening primary and secondary roads to take account of increased traffic is also free and thus does not require new taxes. It was just that pinchpenny county, refusing to part with the infinite store of cash it had access to, that raised the ultimate cost of a new house.
(I’m also more than a little fascinated at this “more profit per home” business — in properly-functioning markets the seller doesn’t get to just choose how much profit they’re going to make per unit sold.)
Right now, it’s mostly the people who can’t hold onto a house in the face of their current situation who are getting clobbered. But as of this month there are a few tens of thousands more (who worked for the builders or the credit companies) out of work, and millions more who are going to have to cut spending because their main planned source of retirement money went away, and so on. And then it will be the folks those spending cuts throw out of work…
And the credit companies will make their late-fee money on all of it.
I’ll make a strange and perhaps indefensible comment - I think being able to do arithmetic without a calculator helps in keeping spending within one’s means.
Paul: In a lot of cases, utility companies would “wash out” the cost of new connections by simply applying them as part of the cost of everyone’s bill. I don’t disagree that this wasn’t fair, but changing it did raise the price of new homes.
By choosing to build larger, more expensive homes on the number of lots into which they could subdivide, builders were able to increase their profit per home. The seller might not be able to set prices exactly (though they can obviously predict a reasonable range), but they are going to make more profit on a 3,500 ft² house than a 1,500 ft² home.
As the bottom has dropped out of new home construction, housing prices are coming down; there is one subdivision in which my company sells concrete for new construction where prices are down by about $70,000 — great for the new buyers, but as for the people who bought two years ago, at the higher prices, it must suck to be them!
There were other effects: by building larger homes, people who had existing homes saw more of an opportunity to buy up. This increased turnover of existing homes, and while it was less pronounced, the value of more “normal” sized existing homes increased as well.
Where I live now (a small town in the Poconos), existing home prices rose pretty dramatically. I was used to the higher prices around New Castle County and the Philadelphia ‘burbs, and thought that I had bought into a real bargain in 2002. As I became more familiar with the Jim Thorpe real estate market, I thought that I had overpaid a bit, but by 2004 prices had risen enough that I was glad I bought when, and for how much, I did. The home across the street and one down from me just sold for 125% of what I paid — and it is neither as nice nor in as good a condition as mine. (The neighborhood is over 100 years old.)
It is no coincidence that tuition started going up and up after the Republicans took the SC Senate in 2000.
“America’s Worst Governor” Mark Sanford is a libertarian Republican who was educated in private schools and really doesn’t see the need for a strong public school system, at least not as much as he sees the need for lower taxes.
In all fairness, Sanford doesn’t deserve all the blame for this, SC’s higher education system is disorganized and dysfunctional by design, as is SC’s state government. Furthermore, SC never has been too enthusiastic about educating all of its citizens.
Meanwhile, the State of South Carolina will continue to lose ground and lose jobs to it’s more progressive neighbors.
I know that MIT tries to provide financial aid for all students who need it. One of the reasons they keep asking us alums to donate!
If you’re in science or engineering, going to grad school usually is supported a lot by your T.A. or R.A. work. Plus, if you go to a state school, you get charged in-state tuition in most cases, which is helpful.
Dana: When my older daughter applied for MIT, we were told it was $44,000 a year. She actually went to Penn State, which was $10,000 a year, for tuition alone.
Yep. The tuition there is really expensive. Anyone who’s not filthy rich who wants a degree from MIT (or an Ivy, for that matter) should go to a good, affordable university with a good engineering program for their undergraduate, and get their graduate degree at MIT. You can still do hacks as a masters student or a Ph.D. candidate, pinky swear.
tzs: I know that MIT tries to provide financial aid for all students who need it. One of the reasons they keep asking us alums to donate!
Ironically, it’s an issue for MIT because they’ve lost some really good students to other schools that gave them a full package.
WRT large homes–there’s a new development near where my parents live that’s all McMansion, built on spec. They’re trying to sell them, and people who’ve lived there are trying to sell their homes to no avail. Even though the prices are slashed, they are still (at $600K or so) far too expensive for people to contemplate buying. And–I risk sounding old and crotchety right here–I remember when a house that size would cost $300K. Now you can get a very small cape in need of a lot of work for that much money.
We’ve got the same issues with condos–there are new condo developments that have been built or are being built; they cannot sell them because they are far too expensive, so the developers are trying to waive the condo fee (a bad idea for the financial health of the association, IMO). They can’t come down too far on the prices (and some of these two-bedroom units go for $300K). Even if some of these units have gas fireplaces and flash, tricked out kitchens, they’re still out of a lot of peoples’ reach; older condos selling for $180-$200K are more affordable.
And yes, $180K-$200K is “affordable” in Massachusetts, which is pretty scary. It’s also scary that I typed that with a straight face.
I know that MIT tries to provide financial aid for all students who need it.
But what this means for a lot of people is that they’re able to knock $10,000 off the $40.000 price tag. Which still results in a cumulative undergrad debt of $90,000. Which, even though engineering is a strong field where salaries are relatively high, is still a lot of money for a 22 year old to owe before grad school, before buying a house, etc.
Well, here’s what I, Menshevik Mark, think we should do:
Nationalize the entire financial industry. All of it. Personal checking accounts, savings, lines of credit, commercial–and also the entire stockbroking and insurance industries. (In one fell swoop, this would also create national single-payer health care of course).
Finance does not create wealth; it manages it. The question is, in whose interest? Clearly the financial industry as it stands operates mainly in the interest of those who are already wealthy.
Naturally, if the state continues to also operate in that sector’s sole interest, then of course this step would just be Big Brother fascism. I am presupposing here that only a massive, activated populist movement, with concrete mechanisms of democratic accountability, would or could accomplish such a sweeping blow to the power of wealth, and that the movement remains under democratic scrutiny and control.
If this happened, it would be the major form of accomplishing what I’ve called “social capitalism,” the retention of the forms of competitive capitalism but with the public as a whole asserting a controlling interest in all enterprises, and managing the whole according to a rational plan to maximize social benefits.
Credit is inherent in capitalism; the basic mechanisms work by tying up wealth in one concrete form to create more wealth (by exploiting the unpaid labor of workers, of course, but this is well hidden) in other forms. If credit were abolished by law, businesses would quickly reinvent clumsier forms of it to circumvent such unreasonably restrictive rules.
From the consumer’s point of view, this would look like the mother of all consolidations. The vast majority of us would see our credit lines (those of y’all who still have any that is–if my behavior in the past 2 years has not killed my credit dead, I guess I’ll need a stake and lots of garlic to finish the job–and of course this is why I think so much about cutting off its head…) anyway–existing credit lines, if added together, are ridiculously extravagant. I suppose a rational regime of credit, which took into account both the personal ability of each creditor to pay without crippling their day-to-day lives on reasonably predicatable incomes, and also the general need of industry to find markets for products which reasonably meet the human needs of those prospective buyers, and the general conditions of the market, would indeed look paternalistic.
But on the other hand, a consolidated credit system, accountable to democratic scrutiny and guided by a rational theory of economic development, could be a powerful lever for financing grass-roots entrepreneurship, and providing vehicles for effective democratic control of those industries that inherently require consolidation to be productive.
Short of such radical measures, I trust that of course the financial system will screw most of us over, some way or other.
Personally, I think the answer is smaller, not bigger.
A society where wages correspond to cost of living, and “cost of living” assumes certain basic truths would be a start, to be honest. If I made enough money to ensure that I could rent or buy a reasonably sized home, put food on the table, clothe myself, get around, educate myself and/or my children, etc. that would be enough for me, and in most cases it would be enough for the bulk of humans on this planet.
The problem, at this point, seems to me to be that in order to secure those basics, even middle class Americans must resort to massive levels of debt.
Definitely funding like that helps. If you’re a humanist, however, it’s more challenging, because our fields tend to have fewer resources overall. On top of that, except at elite universities, the majority of our support comes from TA/lecturer work, which is better than none, but it does slow down your progress. I’d argue that’s one of a few reasons why times-to-degree in the humanities have been getting longer over the past couple of decades.
And if you live in an expensive city as I do, sometimes the stipend just doesn’t cut. Now, I’ll admit to taking on much more debt than I needed to, due to some bad decisions on my part, but even the most money-savvy students I know in my department are carrying some kind of debt.
I hear you, Sheelzebub. In the county where I live (King County, Washington), the median home price is around $400,000. King County, by way, stretches from Puget Sound to the foothills of the Cascade Mountains, so it encompasses a lot of undeveloped land. You can imagine what home prices are like if you want to live in Seattle and not an exurb like Issaquah.
http://www.und.edu/tuition/html/table1.html
Here at the lovely University of North Dakota, I pay about 4000 dollars a semester (in-state) on tution alone. UND likes “fees” but keeps tution rates relatively low.
Now, as an aviation student, add flight fees. Oh, the fun of flight fees…400 dollars/ semester mandatory lap-top fee, $30/ semester AIMS fee, for a single-engine, steam guage plane (the bottom-line, cheapo Warrior trainer) the bargin price of $91/ hour w/o an instructor, $113/ hour with instructor.
Top that off, you still have to live and eat. Luckily for me, cost-of-living is low here in Grand Forks, about 300/month for a nice, single-bedroom apartment on campus. Foods also reasonable priced, and you’ll probably never find cheaper hamburger ($1.98/lb). Of course, the flip side of that is that I have a job that pays $6.75/hr after three years of good work, so making money tends to be a pain in the ass as well, and going anywhere else is a joke.
$4000 per semester or per year?
The totals I gave from Clemson and South Carolina are per year.
The problem, at this point, seems to me to be that in order to secure those basics, even middle class Americans must resort to massive levels of debt.
My husband was getting all depressed a couple of months ago because, despite the fact that we both have decent jobs, we were finding it harder and harder to save anything once all of the bills were paid. Then we realized that our rent had gone up, gas prices had gone up, and food prices were creeping up. So even though we hadn’t changed our pretty modest lifestyle at all, we were losing ground.
When you’re lucky to get a 3% raise every year (and most people are lucky if they get that) but prices are going up by 6% every year, it’s not a pretty picture. That’s how a lot of people get themselves into trouble.
Oh, and another thing I’d like to see disappear — this idea that your home is an investment, and that the money you put into it must “do something” for you. Which leads everyone into the idea of the “rent hole”, that simply paying a fair price for sufficient living space is bad, because you’re just “throwing your money away”(er, no, actually, you’re using it to pay for access to a tangible object) when it could be off in some magical nowhereland of finance, making you pretend richer.
In fact, the idea that your money, when handed over to the proper combination of specialists, should be magically multiplying itself, except not in any real liquid way, but only in a theoretical “on paper” way, should probably go the way of the dodo as well.
What pisses me off is that the credit card companies and mortgage lenders create this mess, then expect taxpayers to bail them out of their get-rich-quick schemes.
The credit card companies did it with the bankruptcy changes in 2005. I shudder to think what the solution to this will be - and how to do it without screwing the average population yet again.
Sheelzebub wrote:
I always pick up the (free) homes magazine at the Turkey Hill where I get my morning coffee and newspaper, and one of the things I’ve noticed a lot recently are houses for sale that are “two years young” and the like. While there were probably a few people who had to move because of a job transfer, and a few more who had to sell due to a divorce, I’d guess that a lot of them are due to people who bought up, maybe on ARMs, thinking that if they could just keep going for a couple of tight years, they’d then be better able to afford them — and miscalculated. Their income doesn’t increase the way they thought it would, but then the county and the school district increase property taxes, and they’re over the edge.
A lot of places raise property taxes simply by raising the millage, but don’t normally reassess property values unless the property is sold; that happens around here. The result is that people who have owned the same house for a while are paying on lower assessed values, and people who bought recently are paying on the more recently assessed values.
$3.00 a gallon gasoline certainly didn’t help: there were some “exurb” people around here who were trading long commutes for being able to get a lot more home for the money — and they’re screwed, too.
Heck, full time tuition my last year as an undergrad at the University of Kentucky was $365. Of course, that was 1977!
Mnemosyne,
It was pre-authorizations but we had been told that as long as we used debit and not credit, this authorization would be for the amount spent and not the extra 20%
They lied.
My son’s daycare pre-authorized for 20% over.
The drug store pre-authorized for 20% over.
The gas station pre-authorized for 20% over (all 4 of them.)
They all got their authorization and their money.
The bank got $270.
We got screwed and didn’t even get a kiss afterward.
The (state) university at which I work estimates a full-time course load for a graduate student to be $3,327 for 9 SCH for an in-state student per semester for tuition and fees. This is not including books, living expenses and so on.
Texas A&M will cost us $18,000/yr in tuition&fees/room&board when (HA! IF..) my daughter gets to go there. That’s undergraduate and doesn’t include books or living expenses beyond the room and the meal plan.
Mnemosyne,
There’s a post to you somewhere…
There it is.
Wow, dear opoponax. These seem like mighty radical observations to me, and to actually implement these ideas will, I think, require at a minimum exactly the “bigger” things I was talking about–as mere first steps, mind, on the road to a truly socialist society.
In your earlier post, you seem to be suggesting that we should all strive to live simply–as the bumper sticker wisely adds, “that others may simply live.” Not like some kind of crazed monk or something, but recognize that luxury costs, both in human labor and toll on the environment. All very true.
But under capitalism, working people are paid according to the cost, under prevailing social conditions, of bringing their labor-power to the labor market. We are ourselves commodified. We are not, as we fondly like to believe, paid “for the work we do,” but for our ability to do productive work under a higher authority’s direction, that authority being the capitalist owners of the enterprise of course. The point and genius of capitalism is to make us into interchangible parts, to be replaced whenever either we fail or a cheaper source of comparable quality (from the enterprise’s point of view) becomes available. As a direct result, it is effectively impossible for working people, on the whole, to save up any significant sums. If a worker is being paid significantly more than they strictly need to maintain their socially defined minimum standard of living, including the cost of reproducing the next generation of wage-slaves, then that worker is in grave danger of either being fired in favor of a cheaper one–one who would be content just to be paid that socially defined minimum–or under that threat, to either suffer rollbacks in wages and benefits and continue working cheaper, or see their work days made longer and tasks more intensive for the same pay. Or any combination of the above.
The only way that the working classes participate in the general increase of productivity and accumulated wealth that capitalism creates (that is, that they create under capitalism) then, is by increasing that socially defined minimum standard of living. This is mainly done via collective bargaining in the workplace, aimed at raising pay and benefits deemed equivalent to pay, while moderating working conditions and hours. The standard of living can also be raised via public goods–that is, forcing the capitalists to pay higher taxes to fund “free” services and amenities, from schools and health care through roads and parks and libraries and including regulation in the public interest.
Thus, under capitalism, the environmentally and socially conscious working person has a severe dilemma. If we act like good proletarians, we must strive for more commodities, more taxes on the rich–more consumption all across the board. If we don’t, then the total weight of capitalist enterprise on the environment and our fellow workers will not be lightened one bit; it is just that the capitalists will capture a rising share of the same expanded social product.
Worse, wealth is power. If we are not to be ruled outright by an economic aristocracy, there must be some countervailing power. Under the typical parliamentary/liberal regimes of healthy capitalist societies, the only countervailing of the concentrated power of the owners of the enterprises is the distributed wealth among the commoners, which reflects our general level of culture and leisure time, with which we might conceivably organize democratic initiatives to counter the self-interested schemes of the very rich.
Thus, to forgo “our share” of an exponentially rising gross global product is to abdicate to the rule of the irresponsible, unheeding rich.
And yet, anyone can see that exponential growth cannot go on indefinitely. We are in fact straining the planet at the seams–and yet the vast majority of human beings are in much more abject poverty than all but the most extremely poor among us, and exposed at the same time to the wildly irresponsible and unchecked military power of our governments, which play Risk with their lives.
It seems to me that the only alternative is to develop a much more robust public sector, which can as it were hold the wealth of the world, and its direction of development, in trust for all of us. Then and only then can we talk rationally about voluntary simplicity–because frankly, there is going to be a whole lot of involuntary privation of some kind or other, the question is, who suffers it. Under capitalism, those who have least and work hardest will continue to suffer the most; those who have the most will become less and less accountable.
If we had, as I suggested, a nationalized (better, globalized) financial regime, accountable to the people as a whole, we could define acceptable ways of living within our means, and enforce them on those who might not want to comply.
As you say:
And later:
Indeed, it should. It may be that to some degree, capitalism, or at least the accounting for production and wealth in money terms, and competition between rival enterprises motivated at least in part by the desire to accumulate more money, is here to stay, despite its easily diagnosed hazards and drawbacks in general. But we should at least see clearly what it is–a system of managing the wealth-creation of ordinary working people, ideally so as to maximize their effectiveness at minimum human costs (including, of course, minimizing costs to things humans value, like the environment). If a system of private property can do that, well and good. I say it can’t, certainly not if unregulated by any countervailing form of social power, and I suspect any countervailing social organization capable of keeping profit-driven activity in humane bounds would be just as capable of doing the capitalists’ creative work just as effectively-better, from the point of view of most of us, if not of course the already rich! (They too might possibly come to see other ways are better, even for them.) So I could be too optimistic about socialism, or too pessimistic about the potential of private wealth and inititive, properly channeled. But we’ve had several generations to try that “mixed” path and the results are at best, well, “mixed,” and the system appears to be gravitating right back to unchecked wealth.
But let us at the very least recognize this–wealth does not grow itself. Human beings make it, and if money appears to be appearing for free in your portfolio–be sure, somewhere else in the world, maybe right under your watchful eye, some large number of people are sweating and being driven insane by stress and working their bottoms off, and not getting that very wealth they create–it’s going to you.
Now, doesn’t a nice regime of financial oversight and populist committees working on development plans sound better than an uprising of desperate poor people who know how to do everything but “make money”?
These seem like mighty radical observations to me
It’s kind of appalling that the list of basic needs that should be within most people’s sights should seem “radical”. Human society is functional when most people have the ability to provide for their basic needs. The times when most humans have not been able to easily have their needs provided for have been considered times of great crisis (famines, depressions, etc.)
The fact that it’s suddenly extremely radical to envision a society where people can rent or own homes that are sufficient for their needs without going into insane amounts of debt or constantly worry that they’ll be pushed out really shows how appallingly fucked up it’s gotten.
We didn’t need socialism or otherwise radical governmental change in order for this to work out in the past. And obviously since it’s all being either caused or allowed to happen by the government, yeah, of course the government will need to be radically changed. But I’m not sure the response to that is to nationalize banking or anything that extreme.
I’m moving to Canada and becoming a Canadian citizen when my oldest starts high school.
University Tuition in Canada? Even at elite universities, like McGill, it’s about 15K a year.
Most others run between 5-10K for undergrad tuition.
Financial aid is available.
This means that I can actually afford to send my kids to a good-quality university, and have health care without working myself into the ground or saddling them with 20 years of unmanageable debt.
How to make credit available for poor people without them paying excessive interest: collectivise the risk.
If all credit providers are not allowed, by law, to vary interest rates, terms, or availability of credit according to credit records or income, except that they can restrict credit to a fixed, publicly-announced multiple of income, then what happens is that the good risks (aka rich people) subsidize the bad ones (aka poor people).
Hmmm, kinda like single-payer health care.
“…should be no shock that many people are in hock with student loans, credit card debt, and (often refinanced) mortgages.”
Yes, a mortgage is the largest obstacle that most folks have in being able to amass sufficient wealth for retirement.
Fortunately, more and more folks are learning how to use a Home Equity Line of Credit (HELOC) as an interest cancellation account to accelerate their home’s equity and payoff their home *years* sooner than listed on their mortgage amortization schedule.
Remember, a home is not an asset until such time as it has been paid off “free and clear” — prior to that time it is simply a (very large) liability.
Today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…
“I’ve always been skeptical of the unusual mortgages out there such the adjustable rate and interest only mortgages. ”
ARMs and interest-only mortgages are not a bad thing per se — whatever the potential pitfalls, it will be to your benefit to use home equity acceleration to pay down those type of mortgages *years* sooner than listed on the amortization schedule:
More and more folks are using a Home Equity Line of Credit (HELOC) or a business-line-of-credit (BLOC) or personal-line-of-credit (PLOC) as an interest cancellation account to accelerate their home equity and payoff their home *years* sooner than listed on their mortgage amortization schedule.
Unfortunately, today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…
“Lee Matthews”, keep your blood-sucking financial scam spam to yourself, asshole…