Forum Post: strategic default...
Posted 12 years ago on Jan. 2, 2012, 10:38 p.m. EST by EricAndersonJr
(51)
from Bloomington, IN
This content is user submitted and not an official statement
I decided a month or two ago to deliberatively default on my credit card debt, and have penned the following letter to all of my creditors. For me, this is one of the only ways I feel I can, as an individual, assert myself against an industry that brought this country to near ruin and continues to fight the very reforms needed to prevent another such disaster. I encourage everyone to take a similar step of their own, and welcome anyone who wishes to use any, or all, of the text below.
Dear creditor,
As you have surely noticed by now, I am no longer making any payments on the credit card account I have with you.
This is not because I am having financial difficulties. I am not unemployed, or even underemployed. I have not had a medical emergency. I am, in fact, perfectly capable of making the payments due, not just on this account, but on all of the accounts I’ve opened over the last several years.
The reason, then, that I am no longer making these payments is because I have simply chosen not to.
I, and countless other Americans, have watched over the last three years as our government has spent hundreds of billions of tax dollars to rescue the financial industry. An industry that is now thriving and turning record profits, while the remainder of the economy continues to flounder. An industry that was granted by the government the chance to wipe its balance sheets clean of troublesome assets, while individual Americans were offered nothing of the kind.
Individual Americans have instead been expected to continue throwing good money after bad – devoting their ever-stagnating incomes towards a crippling debt-load, when they could instead be unleashing that purchasing power onto an economy in need of a lift.
So I have decided, on my own, and with complete awareness of the consequences, to stop doing it. To stop paying my credit card bills.
This will do significant harm to my credit rating. I don’t care. It’s past time for myself, and others like me, to break free of the FICO racket.
This will make it harder for me and my spouse to borrow in the future. Again, I don’t care. I see much greater value in saving, and living cash-only, than in living beyond my means on credit. I only regret that I didn’t learn that lesson sooner.
I understand that you have a process to follow – blocked phone calls, threatening letters, settlement offers. I will be ignoring all of them.
I am walking away from this debt, and I am walking away from you.
I had to dip onto the cards while unemployed and they F'd me so I f'd them back too.
I did this last year and paid all off within 3 months after back to work..
I had a 55,000 limit on Bank of America, I transferred some over and used it at 0% rate to start business. I only xferred a few thousand over, then they lowered my limit to what I owed after a few months.
They downgraded the cards also to lowest type, I had platinum and no dings on credit. This was obviously a scam to screw me.
I purchased gas with it, the bill came in and I was over limit, with hundreds in fees. They went from 0% to 29.9% , min pmt was like $30 and I was paying $150/mo. I also used a couple of other cards, Wells Fargo and Citibank they all followed suit and did same thing not a lot of debt.
I think they found out I was unemployed or trying to work out loan mod with bank, and now a risk so lowered me, is that fair? I was never late and not charging up a storm. I maintained perfect credit all my life since 18 yrs old.
I was paying down, next statement I am over limit (now $3500.00)when I had over 40,000 on BOA available, $20,000 on Citi , etc and never came close to maxxing EVER, had 849 FICO score, and now they f'd me. I am an low 600 on 2 bureau, 520 on other. This is pathetic
So I took whatever cards I had left and racked them up, and stopped paying , they screwed me so I do it back.
They were calling several times a day, I told them I reported them all to the Attorney General, thanks for ruining my perfect credit you will get paid when I settle, and I paid on time until you lowered my limits caused fees and jacked my interest rate up. The promo rate on bal xfer checks Platinum card was 0% for 2 yrs. Then I was put on default rate, balance transfer terms canceled and now my min pmts went over $300.00/month
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What purpose does this serve? You do realize, in time ,the creditors can and will garnish your wages and can put a lien on your property. Just makes no sense.. you hurt no one in the end but yourself and your spouse.
I realize that's a risk, but my suspicion is that my balances are all too small to be worth the effort. Also, my spouse was fully supportive of this.
Unfortunately those small balances become big ones when they start adding up all the late fees and other penalty charges. I just can't fathom why you or your spouse would want to put yourself in that position.
We put a lot of time and thought into making this decision, with input from many others as well. The unanimous judgment was that it simply wasn't worth putting nearly five hundred dollars a month towards debt that simply wasn't disappearing due to stratospheric interest rates. I didn't enter into this lightly.
Well if it were me.. I would do things differently. I would negotiate a lower interest rate, therefore bring the monthly payments down. I had a line of credit for my business that was killing me each month with interest fees. The loan never went down, so I called the bank and made a deal. Now they auto deduct a specific amount each month at a much lower interest rate and I am finally watching it drop. I also no longer have the use of the loan but thats fine by me. It was there for when I needed it. Now once it's paid.. it's done, and I don't have to worry. It also won't affect my business or personal credit rating. Just an idea for you.
I considered those options as well. I was particularly hoping to get a debt consolidation loan. But what I decided was this -- and perhaps I hadn't made this point explicit enough -- this is not a financial decision so much as a political one. And I know that it's not without consequences.
I do, however, appreciate your concern and suggestions -- all the best for the new year!
All the best to you and yours as well !
no, you're wrong. they will ultimately sue you and obtain judgements against you, which will allow them to collect one way or another. what people should not fear is filing for bankruptcy. if you have a case for bankruptcy, then that is what you should consider and do without fear.
I consider bankruptcy an option down the line, depending on how it plays out.
Bankruptcy is not necessarily "your" option. It has to be awarded to you by a judge. A bk judge can deny you bankruptcy and instruct you to work it out with your lenders. the bottom line is that if you have a reasonable ability to pay off your debt, then you're going to have to (assuming the lender enforces the contract). You just can't choose bankruptcy, your circumstances have to call for it.
Fair enough. But again, I'm going to see how this plays out.
I hate to say it but it is not going to play out well for you. It will ultimately cost you a lot more than you owe. And if you manage to get out of it without paying them a ton of money it means you have hit financial rock bottom. It is a loose/loose.
I would give them a call to see if you can work out more favorable payment terms/interest rates. They don't want to sue you anymore than you want to be sued. They will probably try to work something out with you.
I am a dentist and at any time about 2% of my collections are stuck in accounts receivable. I will work with my patients to extend payment plans before I send to collections if they show good faith in trying to get the issue resolved. But when they try crap like this, especially when I know that they CAN make their payments, I don't even bother with my collection agency, I just call my lawyer.
you should never bill patients or send statements. collect all monies upfront or dont do the treatment. i already know you have exorbitant overhead as a dds.
you mean don't loan money on an unsecured basis.
never, it is the kiss of death for a health practioner
and it is one of the biggest source of losses for lenders
It depends on the location. I worked as an associate out of dental school in a an inner city practice where the money was collected upfront and the owner still had AR of about 5% (credit card charge backs, bounced checks, insurance denials, etc). My practice is in a small town (my partner and I are the only 2 dentists) where everyone pretty much knows everyone so I have no problem doing some short term financing when the patients need a hand with it. It is rarely a problem, like I said our past-due AR is only about 2% which is pretty good compared to a lot of my colleagues that I talk to.
I try to be very flexible and people are for the most part very appreciative and I feel like you need that in such a small town. That is why when something like this does happen it pisses me off so much and causes me not to be flexible.
People need to realize that if they owe someone money, and they do indeed have the money to pay it, they will be forced to pay it back, plus interest, plus legal fees.
yours is a unique situation. can i ask what your overhead runs?
30-35% depending mainly on the mix of treatments done and my lab bills for a given time period.
don't play it out to the point of getting judgements against you unless you know that you'll be awarded a bankruptcy.
You could make the payments and then drop the credit card.
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You will get yourself in a legal mess. Unless there is something to suggest that your credit card company hiked rates aggressively or any other form of malpractice, you would have a hard time in court. My advice, consult a lawyer, a smart one, at the least.
My hat is off to you OP.
I hope other people will be as courageous as you are.
As for me, I don't even have a credit score. :p
I was always raised as "cash & carry" so I don't have a credit card.
That being said I would not recommend your solution to anyone, as it plays into the creditors hands for legal recourse.
I would suggest instead that you cut up your credit cards and mail them back along with you regular payment and a note explaining that you will no longer be needing their card. And hope they enjoy your final payments as they will not be getting anymore of your business through predatory lending practices.
http://occupyyourcredit.blogspot.com/
Yeah you really stuck it to them. They will probably take legal action against you.
I like your idea. It inspired me into thinking that we should have one month a year where all around the world we stop paying bills collectively. From mortgage to credit to electric... No one gets paid day.
This is pathetic.
You yourself say you can afford to pay the debts you incurred with no coercion from any source other than your own desire. How about you exhibit some ethics, pay your debts, then cut up the card ?
When we "bailed out the banks" what we really did was inject liquidity to help cover the gap between their long term loans and short term demand deposits. If we hadn't bailed them out, everyone's savings would been at risk. They paid us back with a nice profit to boot.
You can't use a short term loan to the banks as justification for your selfish behavior. Not in my book. Hopefully not in anyone's book.
What's next? Your wife and kids ? Will you get rid of them too when you decide things aren't going the way you like ?
People say the American Dream is fading. I say it may be, but only because American Character started fading first. You are a perfect example.
while the headline post may be pathetic, so is your excuse for bailing out banks. their long term loans were and still are shit. we would've done better to let the banks fail and inject that bailout capital into the fdic to protect everyone's savings.
Your savings are safe, and the loans were repaid. Story over.
We now need to ensure we have a fair system with the proper regulatory controls.
We will never create a system that says it's OK for people to incur debt then walk away from it even though they can afford to pay like the poster.
The poster is a self-justifying loser.
"We will never create a system that says it's OK for people to incur debt then walk away from it" ... Really ?!!! Remember 2008 when The Global Public was suddenly saddled with The Private Debts of Private Bankers, who'd made Private 'Business' Decisions and Private Loans Contracts with Private Persons and "Personhoods" ?!! If your memory doesn't stretch as far back as 2008, d'you remember the somewhat more recent 'MF Global' debacle ?!!!
"Never Create a System" : Go tell That to The Unconscionable Bankster Scum !
While you're at it meditate on The Nature and Morality of Trading In "Derivatives" of 'Compound Interest Bearing Usurious Debt' and also go and research what the word "Jubilee" truly meant in The Old Testament and when and how often it occurred and the reasons why !!
The poster "EricAndersonJr" is absolutely spot on and massive swathes of The 99% really need to unite and take a leaf out of his play book and Hit The Bastard Bankers and their hirelings, as hard as possible just where it hurts and renegotiate The Terms of Usury !!!
ad iudicium ...
Sorry, the banks didn't walk away from the loans we gave them. The similar solution for the average joe would be a Federal program to help them refinance their debt. Oh, wait, we have such a program, and that's where all the repaid TARP money is being spent. In addition the Fed has pushed rates to rock bottom, and that's a "'give-away" to anyone saddled with costly mortgages.
The banks are in worse shape now then ever and our savings are no safer than before. The story is far from over. To this very day, the taxpayer is continuing, through Fed activities, to keep these institutions solvent. The taxpayer bailout continues and has not been paid back its money and will probably never be paid back its money with consideration commensurate to the risk it took. The only winners so far are the bankers who collected bonuses for the last ten years while building up these "shitty" long-term loan portfolios. Some might be out of a job, but they kept the bonus money. They got the upside, the taxpayer got the downside.
The poster is delusional. You can't walk away from unsecured debt that you can reasonably pay (assuming the lender enforces the contract), regardless of your superficial attack on American Character. Furthermore, there is nothing to worry about if "We will never create a system that says it's OK for people to incur debt then walk away from it even though they can afford to pay like the poster."
Just as a point of fact, the vast majority of TARP funds have been repaid, at a profit -- http://www.treasury.gov/initiatives/financial-stability/results/Pages/index.aspx
Granted, the information on that page is specifically about TARP. You may be including other rescue actions when you say the "taxpayer bailout continues and has not been paid back".
And as a point of order, I would just say that I have no problem reading differing viewpoints, but there is no need for ad hominem attacks. They simply diminish the person doing the attacking (I'm referring to Rico's choice of words more than yours...).
Regarding the choice I've made, I haven't done this lightly, or without any consideration of the consequences. This is a deliberate political decision I've made. I'm clearly betting that the creditors in question won't enforce the contract). You can challenge the wisdom of doing that, but it won't change my mind.
they'll enforce the contract and if, during this period of time, you have a reasonable ability to pay what you borrowed, then you'll probably create more problems for yourself.
the taxpayer will probably never be paid back its money with consideration commensurate to the risk it took.
We'll have to agree to disagree. I have $1 million in the markets at this very moment bet on an economic recovery by 2013. I hope you're wrong ;o)
at this point, very little upside relative to the downside. good luck. btw - i have substantially more money than you on the sidelines.
I jumped on anticipation of a Euro-fix. Maybe a bit early, but I still netted 7% in Q4. My time horizon is 2-5 years on this money, so none of the near-term volatility scares me too much. I think we're headed for recovery. Perhaps even in time to save Obama's tail.
good luck
I should probably say outright that I wasn't opposed to TARP or any of the other government actions to stabilize the financial industry. I certainly didn't like the circumstances, but I saw the rescue as a necessary evil. And you're right, the institutions given federal money have since paid it back with interest. They are doing just fine.
They have also worked as hard as they can to oppose regulations that would prevent them from once again engaging in the same sort of behavior that necessitated the bailouts. Their paid-for Republicans in Congress continue to prevent a director being named to the Consumer Financial Protection Bureau as long as that Bureau is actually allowed to have legitimate regulatory teeth. These same Congressional Republicans cry alligator tears over the notion of raising tax rates for the wealthiest of Americans (a segment which includes many in the financial sector) while doing everything they can to balance the federal budget on the backs of those who have nothing left to give.
So please don't preach to me about ethics or character. It is, in fact, out of a sense of moral outrage that I've decided I will no longer participate in this fucked up credit system.
I don't expect I'll have your sympathy or agreement. Fortunately, I'm interested in neither.
It sounds like most of your troubles are with the Republican party, but your actions have no impact on them. Instead, they hurt the shareholders and other depositors at your bank. The overwhelming balance of deposits and stock are held by average people via the mutual funds in their 401Ks and IRAs.
"Screw the little guy depositor and shareholders, I'm going to buy stuff then not pay for it because I'm mad at the Republicans! " Right, that's some "moral outrage" you've got there.
Your actions smell a lot more like self-justification than outrage.
David Graeber, one of the founders of OWS, is an anthropologist who believes that all of the debt, all of it, can be forgiven in what is called a "Debt Jubilee." This is a historical concept that was actually carried out in biblical times and even as far back as Ancient Mesopotamia. Here is a link to an interview where he describes it better than I can:
http://santitafarella.wordpress.com/2011/08/30/global-debt-slavery-watch-economic-anthropologist-david-graeber-thinks-slavery-and-debt-slavery-may-be-a-distinction-without-much-of-a-difference/
sooner or later, somebody has to take the write-down.
He seems to say the money isn't real anyway. If people didn't have to bother with paying their debts they'd be freed up to do other stuff. Here's another conversation with him:
http://www.marketplace.org/topics/business/first-5000-years-debt
it's fiat money. there needs to be a mass write-down so the nation can move on. lenders who made unsecured loans know the risks of making those loans. they should no longer be protected.
Wow. Remind me to never lend you lunch money !
don't lend anyone any amount of money where, if their circumstances change and they can't reasonably pay it back, you can't handle the loss. that's how it goes with unsecured lending.
Ah, but this post is about someone who can afford to pay.
see my posts re the poster. i am not afraid of the potential societal impact on the poster's decision because, objectively, one can't walk away from unsecured debts that one can reasonably pay. your fears are phantom. this guy's attitude just pisses you off.
Yea, you're probably right.
Yes.
great idea. mass write down of debt. then pretty much everyone's 401k would be trashed but government workers would still have our taxes backing their cushy defined benefit plans. retirees who have T bills would suffer like old london.
yup. capitalism sure can suck when you're on the wrong side of it.
you're right, that's a fascinating interview. i'll try to look more at graeber's work. i've heard of the notion of the "jubilee year" before, in a.j. jacobs's 'the year of living bibilically' i think.
either way, he has a very good point, one that hasn't gotten enough attention in the national conversation. i've argued from the beginning that widespread debt forgiveness would be one of the quickest routes to economic recovery.
I find it fascinating, too. It's hard to wrap my head around it entirely, but it is interesting. I think this is why we are all here. To come up with ideas or support ideas that are really progressive, that can change our society in momentous ways.
It would clean up the books quickly, but...
People would stop treating their debt as an obligation like the original poster. People who have been responsible and not incurred excess debt and those who pinched their belt to meet their obligations would feel betrayed. Everyone's moral character would be damaged, and society at large would suffer even worse than today.
Imagine a society full of people like the original poster. It's more than a little scary !
unsecured debt has always carried limitations on the ability of the lender to collect. it's a risk every unsecured lender knows. our society will be just fine with a large scale writedown of unsecured debt and a restructuring of secured debt.
We have a way to forgive/restructure debt. It's called bankruptcy. Why not use it ?
if no mass write down, it will be used
I vote bankruptcy where each individual case can be considered on it's merits.
there will be too many to deal with in that manner. there needs to be a mass realization that the majority of people's circumstances have changed and they can't reasonably pay back the money they borrowed, ie these are bad loans and the losses have to be realized. add in the fact that, for an economic recovery, the nation needs these people back out there spending. Burying these people does nobody any good.
Except for the impact on national character that would result from people being allowed to walk away from debt they voluntarily signed up for. What happened to people accepting personal responsibility for their actions ?
The economy is already recovering, and we are seeing a movement away from debt in the US. Check the last triennial survey of households by the Federal Reserve.
The majority of people in the USA are not underwater unless we consider their home value. That home is still the home they bought when they thought it was worth the money, and they don't have to sell in a down market.
national character? please. the financial industry was spared the bankruptcy process so far. we can spare our populace.
these are unsecured loans that are wiped in bankruptcy. these loans are unable to be paid now does not mean that they were taken out in bad faith - that would be a character issue.
the movement away from debt is because nobody can assume anymore debt. this is bad for recovery.
not really commenting on the secured side other than, with homes, mass foreclosures don't make sense for the economy either.
with a debt problem this enormous and systemic, there is no other choice other than to works things out in such a way that everybody can move forward and participate in the economy. otherwise, everybody loses.
towards the end, the lending in this nation was out of control. and those doing the irresponsible lending are going to have to take losses. even if someone benefits from their loss.
welcome to systemic risk.
The orderly way to effect a soft default is called inflation, and that appears to be the path we're taking.
The movement away from debt is more than just affordability. The attitudes are changing. Everyone in my extended family has Dave Ramsey fever, and they tell me everyone they know has it as well. Better yet, the trend is evident in the Feds last triennial survey of households... all households regardless of socio-economic status reported a 200% increase in the level of liquid savings they feel they should hold.
nonetheless, it's a default. furthermore, inflation carries massive risks that should not be ignored. sooner or later, one plus one will equal two.
debt is not being issued. additionally, no debt available combined with increased savings not good for recovery.
Excellent points. That is why I'm holding my judgment about it. I think, though, that what Graeber is saying is that we need to start thinking about an entirely new economic system, that the capitalist debtor system doesn't work. And, I'm all on board for that. Just don't know what it will be.
How about we return to the old fashioned American value that said debt is bad ? Nobody makes us borrow. We are the ones who bought into the game, and all we have to do is say no more.
Well, I suppose that might work if wages weren't deflating while the cost of everything else is inflating.
Have you reviewed the household finance section of the last census ? We're not collectively in as much trouble as people often assume. We do need to understand how we messed up and ensure we have a proper regulatory structure in place and raise taxes on folks like me and get the money out of politics, but we're not hosed... yet.
No, I haven't. Send me the link if you have it. I think with half of all Americans earning $26,000 or less per year you are going to have problems and these people are going to need to borrow in order to survive. They're not all necessarily greedy lazy people who don't understand the repercussions of borrowing. They're just people that need to eat, get to work, put their kids through college, go to the doctor, etc.
I agree about getting money out of politics. That is the number one issue, even, for me, more important than raising taxes on people like you. LOL!
The links are in my old post at http://occupywallst.org/forum/inconvenient-truths-america/ . Once at the census cite, you can look at an amazing array of statistics about our country !
One of the other big issues for me was not seeing AynRand/RonPaul take over and takes us even further down the path to ruin. It looks like the voters of Iowa may have solved this issue for me.
I'm getting tired now so I saved the link so I can find it tomorrow. Maybe the libertarians will dissipate now that boy wonder is out of the running.
My 15 year old thinks it's hilarious that Michele Bachman essentially came in last and she's from Iowa. Goodnight.
This does absolutely nothing to solve the long term. Give a man a fish...
not the only consideration - take away a man's future...
I think he also talks about how the debt is wrong in the first place because it places people in servitude, so to speak. I'm pretty sure he is also calling for a new economic system altogether.
But they sure as hell like the borrowing part.
And the lenders like the lending and usury part, don't they? Here. Read some more. I can't really argue for or against this as I don't know enough about it, but I find it interesting and provocative.
http://www.marketplace.org/topics/business/first-5000-years-debt
Lenders are aggressive. It's a business. The article was interesting.
This entire generation needs to learn the lesson of debt. Many have missed the point and simply think their behavior was fine, it was just some bad banks. But debt has some fundamentals that got missed: 1) Free will exists, debt is a choice; 2) Debt creates real obligations; 3) Debt reduces resilience; 4) Debt not wisely invested doesn't create a greater capacity for repayment. It really isn't that hard.
The whole country needs to be schooled. Everyone that defaults or complains about debt should have to take a 10 hour online class. It's amazing how many could be so stupid.
just the opposite - loaning money on an unsecured basis is a stupid thing to do. lenders know that their ability to collect the money they loaned out on an unsecured basis is always limited.
Stupid, huh? LOL. It's an excellent business. Most people pay things back. And for those that don't, even unsecured, lenders have certain types of recourse. Filing bankruptcy is a drastic step.
You have no idea what you're talking about. In the history of banking, banks have lost more money than they've made. Unsecured lenders can only.get their money back if the borrower can reasonably pay it back. Bankruptcy is not a drastic step and you will see a huge number of them in this country if there is no mass write-down and forgiveness of unsecured debt.
I know exactly what I'm talking about. Unsecured lending is hugely profitable. It has ups and downs and credit losses are a cost of doing business, but lending is great business.
Bankruptcy is a huge step. It can even dissuade many employers from hiring you because it warns them about your capacity for managing your life.
no, you don't know what you are talking about. the empirical data shows that in the history of banking, banks have lost more money than they've made. in fact, the empirical data shows that the only consistent source of profitability is from fees and secured lending. they always ultimately lose from trading and unsecured lending. and when they do lose they give back a multiple of all profits that have been made, which is exactly what is happening now. current bank losses have overtaken their profits from the last decade by a wide margin. ergo, the bailout.
bankruptcy is not a huge step. corporations file for bankruptcy all the time and move on to become successful. there is no moral or ethical reason for it to be different for human beings. all human beings, like corporations, are subject to unexpected events occurring which can prevent them from servicing loans based upon the original loan terms. and that is why bankruptcy laws exist. over the next few years we will see a massive number of bankruptcies and that (or a massive loan forgiveness/writedown) is what's needed for an economic recovery as these human beings need to get back into the economy spending.
Lord, where does one start. Credit, so banks should only make secured loans. You say credit card companies are nuts, I say you're nuts.
Bankruptcy is a huge step. It's a big step for companies and people. You ignorantly say that companies "move on to become successful". Guess who doesn't move on? THE OWNERS. They're wiped out.
For people, it may not be a moral issue. I tend to agree with this. But it's still a judgment issue. Someone filing bankruptcy is rightly judged as someone with very poor judgement and life management skills. Of course, your response will be people that BK because of something unexpected. Guess what? Ready? PLAN FOR THE UNEXPECTED. Be careful about debt because you don't know what's coming. Setting yourself up as vulnerable and then blaming the unexpected for your troubles is idiotic.
Employers are right to hesitate in hiring BKs. It says "dope" loud and clear and who wants to hire a dope?
You can spout whatever platitudes you want, but I'll say it again, "the empirical data shows that in the history of banking, banks have lost more money than they've made. in fact, the empirical data shows that the only consistent source of profitability is from fees and secured lending. they always ultimately lose from trading and unsecured lending. and when they do lose they give back a multiple of all profits that have been made, which is exactly what is happening now. current bank losses have overtaken their profits from the last decade by a wide margin. ergo, the bailout."
The owners of the entity that goes bankrupt are irrelevant. what is relevant is the fact that the entity that went bankrupt often emerges and goes on to be successful - and obtain new financing!!! In fact, some of the best historical investments are those made in companies emerging from bankruptcy. yes, the owners (or banks) lose on the original deal - that's capitalism, but that doesn't say anything about bankruptcy per se (and future success).
You are incredibly naive to think that all eventualities can be planned for and incredibly judgmental to assume that entities or people that have gone bankrupt didn't "PLAN FOR THE UNEXPECTED". There is an enormous grey area in between which is where most bankruptcies probably result from. When you're able to perceive and think about that grey area, then you might have something interesting to say.
you write: "Setting yourself up as vulnerable and then blaming the unexpected for your troubles is idiotic." Do some research and tell me how many bankrupt ivy league MBA bankers have made statements such as "the events that have caused this crisis were unexpected", "The events that occurred were completely unforeseen", etc. The "smartest guys in the room" (MBAs, Phd's, etc) all say these types of things to explain their bankruptcies in banking and financial market ventures. The difference is that judgmental folks like you give them a pass with that excuse, but not the average Joe on the street.
Employers may be right to hesitate, but would be incredibly foolish to read "dope" loud and clear from an individual's bankruptcy. That's nobody I'd want to work for in an increasingly complex economy that requires leverage to generate rates of return.
Your platitudes make you sound like not a very innovative person, like an administrator type, the type that just thinks and does the status quo - the type of thinking and doing that has gotten us in the mess we're in today.
People do overuse "unexpected", that means in business too. No disagreement there. People blame the spark when all along it was they that decided to walk around dosed in gasoline.
Personal bankruptcy is often a marker for someone with very poor judgment. And in a interview process where things move fast, it can easily get your resume tossed. Bankruptcy is a serious move. At my shop, personal bankruptcy is a flat-out disqualifier.
If you think somehow filing bankruptcy just reflects your status as a renaissance man, LOL, it doesn't. Plenty of us manage a more complex world without falling off the beam. But that doesn't mean that we don't walk the beam.
...plenty walk the beam and then shit just happens.
Debt is what makes this country run under it's current economic system.
No debt = No spending = No Profits = No 1%
But, I don't disagree with anything you say. It all makes sense.
No, not really. A sudden increase in the savings rate would stall the economy, but that hurts everyone. Unemployment hooks higher the lower the skill level. So, you forgot to add one last item to your chain: "No Job".
A gradual increase in savings and debt reduction would be a wonderful thing that would increase the resilience of the economy longer term. That's good for everyone.
I see your point, but I'm not sure I agree with you. Plenty of people have jobs in this country. They just pay so low, half of all Americans earn under $26k, that it doesn't matter whether or not they have jobs, these people still need to borrow in order to live.
A credit contraction helps no one, in the short run at least. Think of it like this: A bank has $100 in capital. That support $1,200 in assets. If the bank has losses the amount of assets is can support falls. Now, it needs to because banks were over-leveraged, but that means less credit (which can be a good thing over time, but it can also be a shock in the short-run).
Low income people do not need to borrow money. Think about it. Borrowing money means the cost of the item plus interest on the loan. Borrowing to "live on" makes no sense unless you plan to default. Borrowing erodes what have have to live on, it's doesn't grow it (again, assuming you aren't planning on defaulting and assuming the borrowed money wasn't invested). See?
You are talking about fractional reserve banking, I guess. So, how do you justify the banks being able to borrow buy creating funny money, but people who need to eat and shelter themselves, cannot?
I totally get what you are saying re: borrowing money. But, people need a living wage in order to pay for necessities. If they don't get a living wage, they need to borrow. How can someone who earns $26,000 pay for rent, food, clothing, transportation, and education, college education?
There's a lot of you that severely misunderstand this Ron P stuff. Banks don't create money is a funny-money sense. Banks make a loan. The loan might get deposited and then re-lent. That's money creation via banks. Maybe look at something even on Wikipedia on the topic. You seem interested, just backfill a little more knowledge.
It's just math. If you earn a low income, you accomplish nothing by borrowing. It doesn't make you better off; it makes you worse off because now you're paying for things PLUS interest. Debt makes nothing MORE affordable. Like I said, the only way debt could make you better off is 1) you default; 2) what you bought with debt goes up in value by more than the interest rate. It's a closed loop.
This idea that debt makes you better off is just another artifact of the credit culture. Debt for investments is fine, assuming the investment in education or whatever pans out. Otherwise, it's a cost, not a benefit.
I read a whole book on fractional reserve banking. That's what happens when you give a bank $100 and you think you're depositing it and they "borrow" it, put it at risk, and make money off it.
I agree with you 100% that borrowing doesn't make anyone's life better. The thing is people need to survive and if they don't make enough money in their wages to survive, they will borrow.
But banks aren't up to anything sinister in the least. The system makes loans, some of which come back as deposits that support other loans. But each has reserves and capital against part of it. But think too about what money is. It represents a claim on economic activity. When you have bad things going on with the money supply, the value of money is erratic and unpredictable. That's simply a problem we don't have and haven't had for 30 years.
Yes, if people refuse to live within their means, they borrow money to experience a temporary lift, but then become even worse off when soon they face living off their low income minus interest payments. The only way debt for consumption makes you better off is if you default.
Just a funny one. I guy chided me for noting that borrowing is a choice mentioning the "high" price of cars and how nowadays you can't buy a car without borrowing. Of course, the simple math is that a car plus interest costs more than a car. That's obvious as hell, but escapes many. That just shows how deeply ingrained the debt culture became. Honest to God, if you can't afford a car, borrowing money for it makes it no cheaper (unless you plan to default).
All true. But, seriously, what does one do if they don't make enough money to ever pay cash for a car. If half of Americans are earning $26,000 or less and you know the price of cars, what to do?
...and the greed of idiots will cause them to loan the money. it's immoral to loan money under a guarantee that the borrower will become enslaved by the loan. There are laws about this. when you loan money on an unsecured basis, you are betting on someone's future. if the borrower's future doesn't pan out as expected, then the lender loses.
The typical OWSer idea that banks own greed is foolish and self-serving. Millions of people borrowed money of their own free will, spent it, defaulted, but then cited bank greed as a rationalization. But for many, it was greed for the home they couldn't afford, the car their neighbor had, or a cruise they "earned" and "deserved".
lending is a choice executed out of free will as well. bankers are the gatekeepers who determine which debts enter into our economic system. bankers don't have to loan money to people for homes they can't afford, cars their neighbors have, or a cruises they "earned" and "deserved".
and for many it was a perfectly reasonable amount of leverage as required to participate in this economy and then the loss of their income. you sound like a judgmental asshole.
But for many many many, it wasn't. It was simply poor judgement and poor life management. Bankruptcy conveys information. It does.
bankruptcy does convey information, but not all of the information.
greed is everywhere. a lender of money knows that they're ability to recoup their money from the borrower is always limited. if you're in the business of unsecured lending, you should know the risks.
They do know the risks, they also know the rules. Banks have taken huge losses and their shareholders have gotten drilled and in some cases eliminated. It hasn't been easy for the banks. Don't believe me? See what $10,000 invested in Bank of America in 2006 would be worth today. Hint: It's gone down more than housing.
But what's important is to not change the rules mid-game. If people want easier defaults, that's fine, just let the banks factor in the new landscape BEFORE they make the loans.
The banks and their shareholders have been bust many times over for years now. Bank of America stock as well as many others should have been zero in 08 and earlier. They took risks and they lost. They are still around today because of the taxpayer. They now need to be taken off life support and allowed to die (explicitly - as they've already been dead for years now).
Sure, but understand the implications. Crushing the banks would mean a severe contraction in credit. Not only would BofA, in this example, have to stop making new loans, they'd shed the loans already on the books. Other lenders would invest in those discounted loans before they'd make new ones. That means credit of all types would tighten dramatically. People talk big about wanted to kill off the banks, until it's their employer that can't get a credit line for an export order or working capital.
Your fears are phantom and you sound like a pr release for BofA. We can let the long-dead banks go. There is capital out there (including Fed activities) to assume the good in dead-bank portfolios and continue making new loans. I don't share your fears.
And the spending.
Well, it's a good start to become "independent" and pay for everything with cash.
However, when they take you to court and garnish your wages you will be with less. In addition to that, you will probably have your power turned off because I am sure you feel the same way about the power company. Keep us posted.
As I said to CatLady2 (below), I realize that legal action is a risk, but that's the risk I'm taking.
I'm curious as to why you think I feel the same away about paying my utility bills?
Because they are part of the "evil rich and wealthy". Why stop at one - take them all on.
Gotcha. But this isn't about the "evil rich and wealthy," whatever that means. It's about an industry that brought this country to near-collapse through its reckless and unethical, if not outright illegal, behavior but was given the opportunity and the means to erase their bad debts and recover to full functionality. The individual American has not been offered that opportunity, so I'm simply making it for myself.
I fully acknowledge that what I'm doing is likely foolish, at least partly childish, and probably not at all productive in the long run. At the same time, I have certainly benefited from the extra $400 or so each month that I can now put back into the local economy.
If you were ethical, you'd either return everything you bought with the stolen money or give it away to charity. I'm guessing you still have it all, right ?
Nice $400 pay raise and very little effort required. Just a little rationalization.
It wasn't the "industry that brought this country to near collapse" it was the "people of this country".
Think about this everytime you or anyone else buys a "cheap chinese made product" you are proping up jobs in china.
If the people of this country demanded that we need more jobs here they would stop "buying cheap chinese made products" and demand from not only businesses but our representatives to enforce laws that limit imports and provide a "equalization tax" on imports to encourage jobs here.
...and stop providing free capital, in the form of bailouts, to the finance industry. If I'm not mistaken, the US taxpayer has forked over hundreds of billions of dollars (explicitly and implicitly) so far to the finance industry precisely to avoid collapse. The finance industry received and continues to receive this capital because it keeps a "gun" (collapse) at the taxpayer's head. How one could possibly say that the finance industry did not bring this economy to near collapse? To avoid collapse was their whole reason for requesting the bailouts in the first place. I am deeply skeptical of anyone who apologizes for this industry.
Think about this
Why are there so many foreclosures - it was because bankd were forced to hand out sub-prime loans by the government with the full knowledge that they couldn't afford them and backed them should they go into default - which is what happened. Fannie Mae - Freddie Mac - Bill Clinton - Barney Frank caused this to happen.
The domino effect happened after that.
Buying chinese made products by the boat load by the American consumer creates jobs in this country doesn't it?
It's undeniable that the Clinton administration encouraged the banking industry to expand their mortgage lending.
The industry was not, however, forced to steer borrowers towards sub-prime loans when they qualified for more standard mortgages -- they did that of their own volition.
They were also not forced to slice up sub-prime mortgages into inscrutable securities, then sell them to unwitting investors, and at the same time take out insurance on the default of those securities.
As for an "import equalization" tax, I can't speak to the merits of it, other than that sort of suggestion usually raises flags about "tariff wars". International trade isn't something I follow, since my interests are more in domestic policy. But I think it can be fairly argued that raising taxes on imports isn't going to do anything to encourage manufacturing to return to the States. There would need to some sort of incentive system in place, not to mention China abiding by human rights standards so that labor would no longer be so irresistibly cheap there.
Either way, I can assure you that I try as much as I can to buy local, and to pay attention to the origin of the products I use.
no one was "forced" into a subprime loan. they were called subprime because the borrowers couldnt qualify for a standard loan. get your facts straight.
This is the sort of thing I was referring to:
"Investigators also found that borrowers were pushed into more expensive mortgages in part because Wells Fargo employees could boost their bonuses if they hit subprime targets.
Borrowers who otherwise would have qualified for lower-interest mortgages weren't told so, nor were they told that it was "generally more advantageous for the salesperson to sell a nonprime, rather than a prime, loan," the Fed said."
http://www.huffingtonpost.com/2011/07/20/wells-fargo-subprime-fraud_n_905198.html
did you read the whole article? they had to pay back the borrowers, the borrowers were made whole. it was a very small part of the sub prime market.
Yes, I did. I don't post articles I don't read. But thank you for asking.
And yes, the borrowers were paid back. The bank had to pay them back because the bank had signed them onto sub-prime loans when the borrowers in fact qualified for better terms, which is exactly what you said hadn't happened.
And even if it was a small part of the sub-prime market and an isolated incident (which I don't believe to be the case, but I'll need to look into it further), it doesn't change the fact that these bank officers acted illegally. Furthermore, even if this particular breach of the law was isolated, it was merely symptomatic of the more widespread malfeasance throughout the banking industry that valued quick profit and risk over solid investments and long-term growth.
To say that the finance industry did not bring this economy to near collapse is absurd. I do not differentiate between the finance industry and its political bedfellows. In general, I do not differentiate between big business and big government at all. That's nit picky. They are one in the same, so please don't bore me with your "who's to blame" mental masturbation. Philistines fear big government more than big business.
The politicians have to go and the finance industry needs to be heavily regulated in the way our utilities are regulated. When was the last time we saw a crisis in the utilities sector that brought the nation to near collapse? Banking (financial intermediaries) is part of the infrastructure of our nation in the same way utilities are and need to be treated and controlled, by the citizens, as such.
If all you're able to talk about is bad mortgages, your understanding of the financial crisis is superficial. As for outsourcing our nation's human capital to China, no shit. Big business has hollowed out this nation from the inside and our elected representatives allowed them to do it.
What are you going to do about it, nit pick with your philosophy of misdirected blame to the folks who are actually doing something about it?
Here's what you should do (if you have some balls) - create a sign about outsourcing our nation's human capital to nations with lower standards of living and then go participate in a protest. You're not really doing much here.
I have written my congressman with the following idea:
Impose a "import equilization" tax on all imports that would equalize in price to products made here in the US
Impose a "export/import" tax on all businesses that have their business here in the United States but import goods made in other countries into this country.
Give businesses who build and produce goods here in this country tax incentives.
Use the "export/import tax" to build bridges, infrastructure and highways along with providing jobs for people on welfare to learn a trade/craft/or other type of employment supervised by the companies doing business here.
sounds damn fine to me. thank you for your efforts.