Banks Are Not Your Friends

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I believe that banking institutions are more dangerous to our liberties than standing armies. – Thomas Jefferson

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Thanks to William Grootonk for the image.

Yesterday, I was stunned to read a news report about how Freddie Mac denied people the ability to refinance, then made investments that earn them more money if people are unable to refinance. “Freddie Mac has invested billions of dollars betting that U.S. homeowners won’t be able to refinance their mortgages at today’s lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom. [...] Millions of homeowners wish they could refinance, but their lenders tell them they can’t qualify for today’s low rates because of tight rules. Freddie Mac is one of the gatekeepers with the power to set those rules, and lately, it has been saying no more often to homeowners.”

In other words, the investment arm of the institution is making investments that will profit if people can’t refinance while their lending arm is telling people that they can’t refinance.

They are not your friends.

Do we even need to go into detail about how banks, insurance companies, and lending institutions consistently work against the customer?

Citigroup’s main brokerage subsidiary, its predecessors or its parent company were considered by the SEC to have violated the law against purposeful or negligent fraud of customers under interstate commerce five times: in 2000, 2005, 2006, 2010 and 2011. In each instance, the firm undertook “never to breach the law again”.

Bank of America, which now includes Merrill Lynch, was found by the SEC to have violated security laws some sixteen times and made similar pledges on each occasion.

JPMorganChase, which now includes Bear Stearns, was found by the SEC to have violated security laws some twelve times and made similar pledges on each occasion.

The scorecard for other big financial institutions is: UBS —seven times; Goldman Sachs —three times; Wachovia —three times; AIG —twice. The list goes on.

These businesses are not out to make your financial lives easier. They are out for profit. Sometimes, profit might be in line with what your financial needs are. At other times, the profit of the bank is opposed to what your financial needs are – and profit will win.

These banks are doing exactly what they were designed to do, which was make money for the shareholders. That does not include making money for you unless doing so happens to coincide with making money for the shareholders.

My point is simple. Do not rely on these institutions for your financial future. If you already do, make it a serious focus to reduce your reliance on them.

Every day you’re in debt, you’re handing money to these financial institutions because they loaned you some money in the past. If you put $1,000 on a credit card and wait a year to pay it off, you’re not only paying back the $1,000, you’re giving them $200 more for the privilege. Mortgages are even more painful. A 30 year mortgage for $200,000 at, say, 6% often has several thousand in closing costs right off the bat. Then, over the lifetime of that mortgage, you’ll not only pay back the $200,000, you’ll also pay back $231,676.38 more in interest just for the privilege.

Got a credit card? The terms will likely change on that card on a fairly regular basis as the companies find new ways to earn a profit from you holding that card. Often, that means you’re going to be paying fees on it or high interest rates on it or interest that starts accumulating very quickly or bonus programs that are difficult to use.

Every day, I receive emails from readers that have piles of credit card debt, piles of student loan debt, a big mortgage, car loans, and other forms of consumer debt. Others are thinking of getting deeper into debt because they want that house or that car now.

When you walk in the door of a financial institution, you play by their rules. They do not give you money because they want your dreams to come true. They give you money because they’re going to make far more money from you over the long run.

Your mortgage may be life-changing for you, but it’s just another profit-making revenue stream for your bank. The same goes for your car loan or any other debt you may hold.

What’s the solution, then? Debt freedom. It’s a very simple goal, but it’s a powerful one, and until you achieve it, you’re going to be simply handing money to financial institutions.

What’s the biggest part of debt freedom? Self-control. You don’t need everything, and you certainly don’t need it today. Your life will not be made whole or complete by having a big house or a shiny new car. Focus on having just the things you actually need and stand on your own two feet with them.

The best thing you can do if you want better behavior from the banks is to make yourself far less reliant on them and stand on your own two feet financially.

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85 thoughts on “Banks Are Not Your Friends

  1. So mortgages are evil too, now that you’ve paid off yours? Is everybody supposed to rent until they can pay cash for a house? But landlords are not your friends either! What to do, what to do?

    The problem with mortgages is not the interest you pay. It’s not even (necessarily) the fees. It’s that the rules are so complicated that nobody can understand them – sometimes not even the banks, when they can’t keep track of which mortgages they own and which houses they’re allowed to foreclose on.

  2. I’d like to make a plug here for doing your “banking” at a credit union. They typically don’t have flashy branches on every corner, and their rates don’t always seem as competitive. But they exist solely to benefit their members, not to make a profit. Credit unions will not lure you in with teaser rates and then start adding fees later. What you see is what you get.

    The credit unions I’ve done business with have superior customer service, too. Because, again, the purpose of the institution is to provide financial services to its members. Not shareholder profit.

  3. @Becky: it depends which credit union and where. The biggest credit union in my province is technically a co-op, but in fact it is the only institution where I have lost money.

    When we were dating, my husband and I were robbed at knifepoint on the street. Once the police report was filed, the first thing he did was call the credit union to block his cards. They assured him everything was blocked in time and that his account was intact. Then the remainder of his student loan disappeared from his account and he was left without recourse. Plus, they have the worst opening hours ever.

    In contrast, a few years ago I called my bank (past midnight!) because I got a fake bill in their machine. They barely asked for any details, apologized and credited the $20 back to my account.

    I am never doing business with my credit union again.

  4. Making sensible financial decisions depends on thinking rationally — something this post actively discourages in favor of propaganda.

    There’s absolutely nothing wrong with taking on debt for sensible purchases within your means. And paying off debt early should be a calculated decision rather than an emotional one. While I was earning 6% tax-free interest in CDs and paying 5.5% tax-deductible interest on my mortgage, I didn’t prepay my mortgage. When my line of credit interest dropped to 2.99% and looked likely to stay there indefinitely, CDs dropped to 1% and my mortgage was still 5.5%, I borrowed on my line of credit, paid off my mortgage, and slammed extra money at the line of credit rather than into savings. And my bank let me do it even though it lessened its profits!

    And there’s absolutely nothing wrong with banks being motivated by their financial survival rather than their customers’ best interests. In that, they operate just like grocery stores, shoe stores, and every other business, and also like all non-profits, all unions, all government agencies and most individuals.

    As for breaking SEC laws, your list of violations isn’t partiularly impressive, without knowing how obvious and egregious those violations were. If you drive, how many times within the last year have violated some traffic law? Chances are, dozens of times. If you file tax returns, how confident are you that you have never violated ANY provision of the tax code? If you applied for loans in the 5-10 years prior to 2009, is every single detail on your loan application absolutely the truth? You swore under penalty of perjury it was, but I routinely review old loan applications, and I’ve never seen one that didn’t fudge something, if only overvaluing vehicles and personal property.

    The point of much regulation today seems to be to ensure that everyone’s a criminal if his/her behavior is thoroughly investigated. I doubt it is possible for any large business in a heavily regulated area (most of them, nowadays) to avoid violating some rules some of the time.

    The sensible way to think of banks is the same way you think of your grocery store. They will both let you make bad decisions, and even arguably encourage you to make bad decisions, but ultimately, the decision is yours and if it’s a bad one, that’s on you, not them. If you want to feed your kids on chips and soda, your grocery store will let you do it. If you want to borrow more than you can comfortably repay, your bank may let you do that, too. Or, because of new regulations, they may not, and you can whine about that too. The reason many people cannot refinance is that they are underwater and/or do not qualify under the new, stricter regulations and/or can’t get away with lying as easily now as they could when they first borrowed.

  5. I would like to point out that there are NO for profit companies that have your best interest in mind. They are there to make money. If you don’t like how they operate you can take your business elsewhere.

  6. @AnnJo: The difference between the bank and the grocery store is that at the grocery store, all the products have their ingredients and nutrition information presented in a concise, standardized way, so you have the information you need to decide whether a particular product is a good choice or a bad choice for you. Also, you can be fairly confident even without reading the ingredient lists that nothing you buy is going to be downright poisonous.

    These are examples of regulations doing what they’re supposed to do (although I don’t doubt that the system is far from perfect). I think it makes sense to hold financial products to similar standards.

  7. #6) Johanna, I like that–if financial products were as clearly labeled, and able to compare amongst sellers, we consumers would be better off.

    What I like about this post is the over arching concept–banks are profit making entities–and this concept applies to all businesses. For example, companies that make food and hygiene products are motivated to make a profit and because of that, their ingredients likely are those that are shelf stable and less costly, and not necessarily those that are the best quality or most healthful. I’ve begun making my own moisturizers for this reason, and buy mostly single ingredient foods.

  8. Well, not quite what Jon said. If there are no companies that are not out to rob you, what is the point of taking your business elsewhere?

  9. Johanna, yes, there is some standard information on products at the grocery store. And there are product information inserts on over-the-counter drugs, too. Yet every year, thousands of people die from ignoring OTC drug insert warnings, and as you well know, millions of people fail to optimize their dietary choices despite the standardized information available to them.

    Meanwhile, you can’t take out a mortgage or loan without having to sign pages and pages of documents advising you of all the implications of what you’re doing, including numerous disclosures of what you are getting into. If they read what they signed, people would either know what they needed to know, or know that they didn’t understand it and shouldn’t sign it until their lawyer reviews it. But the vast majority of borrowers never even make a pretense of reading what they sign.

    And why don’t they read it? Perhaps it is because they are convinced it is the government’s job to regulate all risk out of their lives and they believe that can actually be done. It can’t. People with 8th grade educations seem to think that they can buy a house and take on a multi-hundred thousand dollar obligation without having to spend $200 on a lawyer or even switch on a brain cell. It’s ridiculous, and the best thing government could do for them is honestly tell them they’re on their own and stop trying to pretend they can be adequately protected.

    Do we really want a system where the government dictates to the lenders who can borrow money and who can’t, treating all consumers as if they were children or mentally deficient, incapable of making their own decisions? When are people going to realize that the only way to protect people from making bad decisions is by taking away from them the power to make decisions at all?

  10. Regulation isn’t about protecting people from making bad decisions, it’s about preventing companies from committing fraudulant ones.

  11. “as you well know, millions of people fail to optimize their dietary choices despite the standardized information available to them.”

    You might have said that they prioritize something else (e.g. taste or convenience) over nutrition – which, I’m sure you’ll agree, they have every right to do.

    “Meanwhile, you can’t take out a mortgage or loan without having to sign pages and pages of documents advising you of all the implications of what you’re doing”

    Erm…that’s the problem, isn’t it? Pages and pages. Too often, the banks’ strategy is to overwhelm consumers with so much information that they can’t figure out what they’re getting into, and they don’t find out that they’ve made a bad decision until it’s too late.

    If food manufacturers did the same thing, they’d be handing you a 20-page paper on biochemistry every time you wanted to buy a box of cookies. And in the middle of that paper it would be revealed that the cookies are low in calories because they contain lead acetate as an artificial sweetener.

  12. What AnnJo said. People can’t be protected from everything, and in fact shouldn’t be or they’ll never learn to be competent, independent, and free-thinking.

  13. Was going to write a longer post but AnnJo summed it up quite nicely.

    #14 Johanna
    You’re honestly going to say that the problem with mortgage products is that the bank gives you too much information? Reading 20 pages of information to decide if your afternoon snack is healthy would be ridiculous. Reading 20 pages detailing the specific terms of the largest financial transaction of your entire life is not. I agree with AnnJo and the original post that the problem is not in the information provided by a bank, it is in the consumer being all too willing to assume the bank is offering them a good deal.

  14. Johanna said “Erm…that’s the problem, isn’t it? Pages and pages. Too often, the banks’ strategy is to overwhelm consumers with so much information that they can’t figure out what they’re getting into, and they don’t find out that they’ve made a bad decision until it’s too late.”

    Who do you think requires them to provide so much paperwork? Two guesses…1) Government regulation, and 2) Armies of lawyers trying to protect them from liability exposure because we live in a culture where every bad thing that happens is blamed on someone other than oneself, even if for something as silly as “I wasn’t warned of the danger explicitly enough”.

  15. Re #10 – Neither Jon nor I said anything about companies being out to rob you. But a business’s bottom line is their main focus and ultimate indication of success or failure, no matter how good their customer service or company climate ishove. Few people open a business to lose money.

  16. And yet, Johanna, those “pages and pages” are required by government regulations, not the “banks’ strategy” so who’s hiding the ball? In fact, if you look at the bottom of those pages, many of them include codes that indicate that the form itself has been approved (read mandated) by HUD.

    And part of that approval process is meeting a mandate that the documents be written in plain English, unlike the documents I signed with my first home purchase, that still referred to “the party of the first part”. Ironically, using legal jargon kept those documents much shorter since it was expected they would be read by lawyers who knew what the terms meant; trying to explain legal concepts in plain English just takes more words.

    You want more disclosure, but fewer pages? I think what you want is more simplicity, but the fact is, a secured home loan is not a simple transaction.

    Nobody should sign documents involving many thousands of dollars when they don’t understand them. That’s basic common sense. Trying to make common sense unnecessary is a losing proposition.

  17. Again, that is not what regulation is for … regulation is to prevent banks from lying and then profiting off those lies. It has nothing to do with if the consumers are being informed – it’s if what they’re being informed about is is *false*

  18. I don’t have a mortgage and have never tried to get one, so I can’t speak from direct experience on that. But I do have two credit cards, neither of which is the largest financial transaction of my life, and both of which I got before the Credit CARD Act of 2009 went into effect. And I’ll admit that despite having a far-above-average education, I would not have been able to figure out all the traps that the card issuer had set for me just be reading the terms and conditions. To the extent that I know anything at all about things like double-cycle biling, universal default, and payments allocated to the lowest-interest balance, it’s mostly because of other people who have taken the time to explain those things in plain language.

    Now, in my case it didn’t matter much, because I’ve always paid off the whole balance every month, and I’m in a good enough financial position that I could handle any surprise the card issuer were to thrown at me without too much difficulty. But is it too much to ask to have credit card terms written out in a simple enough way that you don’t need a lawyer to understand them?

  19. “is it too much to ask to have credit card terms written out in a simple enough way that you don’t need a lawyer to understand them?” Well, give it a shot. Now that you DO know what double-cycle billing is, or universal default, try explaining them in plain language – Oh, and make it shorter than their explanation, too. I think you’d find it quite a challenge.

  20. @ #10 David:

    “Well, not quite what Jon said. If there are no companies that are not out to rob you, what is the point of taking your business elsewhere?”

    You find the company that has something to offer that benefits you more than any other company with the same offering. If no other company provides that service then you have 2 options. Go without or go with the only company that offers the service and deal with the consequences. (Potentially a third option would be to start your own company).

    The bottom line is that business are not your friend, and yet people think that they are. They sell something because it is profitable not because they are nice and want to serve the public. Non-profits serve the public. And even at many of those, the employees are still getting paid.

  21. Johanna, given that you say you have no direct experience with the process of getting a home mortgage, you seem to have very strong opinions about how deceptive and misleading that process is. Having myself financed or refinanced property dozens of times, I have myself only witnessed one instance of a bank loan officer being “deceptive” and that was in an effort to help me, rather than harm me. (By trying to give me homestead protection and a lower interest rate on a HELOC on a Texas rental property, when rentals technically don’t qualify for it.)

  22. Johanna doesn’t need to try to explain double cycle billing, because now it’s illegal for credit cards to use. A win for consumers and a loss for banks.

  23. @AnnJo: If it’s true that it’s only because of government regulations that financial agreements are so complicated, and that lenders would really just like to be able to explain everything much more simply, then the problem is not too many regulations, but the wrong regulations.

    @Other Jonathan: Do you think that the fact that you can’t buy cookies with lead in them, or (to borrow Elizabeth Warren’s example) a toaster that has a 1 in 5 chance of blowing up in your face, prevents you from learning to be competent, independent, and free-thinking?

  24. Tracy, losing double cycle billing is a win for SOME consumers and a loss for others. The ones who win are the ones who used to pay higher interest at a specified rate, by carrying a balance from month to month, and now pay less interest IF the specified rate has not changed. The ones who lose are the ones who no longer qualify because banks, to make up their losses, have had to tighten lending standards, or the ones like me who have had annual fees imposed, or the ones whose rates were increased, or the consumers who have been deprived of greater diversity in the credit markets because it is harder for marginal banks to maintain profitability. ALmost always, these types of interventions in the markets result in a win for the most irresponsible level of consumer, a loss for the rest, and a greater concentration of power in the largest enterprises.

  25. Johanna, I didn’t say that lenders want to explain things more simply. Their primary goal is and has to be to explain things accurately and enforceably. There is no such thing as a simple commercial home mortgage. Get a mortgage loan from your uncle, and it can be as simple as him cutting you the check and you promising to pay him back. Virtually unenforceable, and zero protection for him, but hey, he’s your uncle. He isn’t responsible to his shareholders, though. A bank that handled things that “simply” would be holding its board meetings in the prison cafeteria.

  26. I’ve made hundreds – thousands of dollars off rewards cards programs, never paid a dime in finance charges and would have to say the experience has been 1,000,000 x easier to navigate than any cable/internet promotion. I take advantage of the program for purchases I would have made anyways, get paid, cancel the card and get a new one when the program ends. Buyer beware with credit cards- no different than Walmart or Craigslist or a mortgage you know you can’t afford. Banks being evil is almost irrelevant or childish – how about personal responsibility?

  27. If companies (and governments) were to put their focus on serving people instead of generating profit for shareholders, we’d all be a lot better off.

  28. It’s a shame how we’ve come to accept paying money to access our money. My credit union, a CREDIT UNION, now charges for all ATM transactions INCLUDING CHECKING YOUR BALANCE.

    There’s not much to do as an individual, but I use 3 banks to diversify and protect myself and use each one for their best attribute: one for mortgage, one for savings, and one for checking, and all were chosen based on no balance/maintenance fees or interest. (My credit union is just for the mortgage FYI)

    As for terms of use, they really aren’t “hard” but it’s daunting to try to read it like a novel. Next time you get one, pull out a tiny highlighter and start to zip zap words and sentences of note. Next time they “revise” it, compare the new one with your highlights.

    And finally, I had one bank kill my oldest and best credit card for inactivity, so please remember to use them or lose them, even if you just have a card with your Netflix monthly charge and you pay it every month.

  29. @Johanna – I have been through 3 home loan purchases and 2 refis in the last several years – some before and some after recent legislation that was supposed to make the process more transparent to the buyer. Some of the most confusing documents I had to sigh were the ones where the government tried to make them “plain English”.

    Like AnnJo said, a secured home loan is a complicated process. Some people are just not capable of reading and understanding all that documentation. Those people need a lawyer (someone who is on their side, who can digest the information for them) to help them through the process. Attempts to simplify the verbiage only make it more complicated, and delude people into thinking they can handle the transaction on their own. That does a disservice to those folks.

    Imagine what would happen if we just made all drug information in “plain English” and then eliminated prescriptions, made all drugs OTC. Some people (very smart, careful ones with lots of time for research) could manage to self-medicate. But even with all the information in the world, most people have neither the time nor inclination to do the necessary due diligence to safely self-medicate. Drug interactions are complicated, as are real estate transactions. These people need a doctor to digest the information for them and present only those pieces that are relevant to their own situation. Same idea.

  30. “If companies (and governments) were to put their focus on serving people instead of generating profit for shareholders, we’d all be a lot better off.”

    Oh, please, TLS. If companies did that, their shareholders would soon relieve them of the capital needed to operate; hard to focus on serving people when you’re out of business.

  31. @TLS – Shareholders are people, so serving them is serving people. If you have any of your retirement money in stocks then YOU are the people the company is serving when they serve their shareholders. Its a balancing act juggling the needs of the shareholders with the needs of the customers and the needs of the employees in any publicly traded company.

  32. Interesting you should mention exploding toasters, Johanna. Look at almost any electrical device in your home and you’ll find a symbol with the letters UL in a circle. Underwriters Laboratories is a private non-profit standards organization started in 1894 that was providing consumers protections against exploding toasters and other unsafe electrical products long before the government got into the business.

  33. “Imagine what would happen if we just made all drug information in “plain English” and then eliminated prescriptions, made all drugs OTC”

    Why eliminate prescriptions? Or, on the flip side, why not require anyone who wants a loan over a certain amount to meet with an independent lawyer? That might or might not be a good idea, but I still maintain that you should not need a lawyer to understand your credit card agreement.

  34. AnnJo, are you really holding up double cycle billing as an example of government intervention being bad? Thats a bit of a stretch. Hard to see how double cycle billing is good in itself for any customer hit with it. Sure if you cheat some money out of stupid customers you can share the profits with everyone else, but thats not OK.

  35. “why not require anyone who wants a loan over a certain amount to meet with an independent lawyer?”

    That’s exactly the wrong kind of thing to do. It makes the process more expensive for EVERYBODY, and for those who are fully capable of understanding the transaction on their own (especially if they do transactions of that sort all the time) it’s a highly unnecessary burden. For those who aren’t, see the comments regarding the need for people to take some initiative and protect themselves.

    The lawyers would love that rule though!

  36. Trent says not to rely on banks for your financial future. So, now that you are debt free, are you putting your money in your mattress or something? Personally, I invest my money, and use some pretty big banks to do so. This is a post about Trent’s feelings about debt, not about banks, really.

  37. Also, like Wes, I use credit cards’ reward programs all the time. I haven’t paid a cent in interest or fees in about a decade, but have earned much much cash back in that time.

  38. Real Estate Lawyers are required in my state, and honestly I think its great to have a neutral third party (or fourth or fifth if you count the real estate agents and the mortgage company) party evaluating a contract that takes a minimum 30 minutes to sign, if you’re lucky. Yes, it added $400 to my closing, but it was worth it in my opinion.

    Johanna, I think it’s a bit unfair for you to criticize paperwork involved in the home buying process without ever going through one.

    While I was earning 6% tax-free interest in CDs and paying 5.5% tax-deductible interest on my mortgage
    I’d like to know how you were getting that interest tax-free…

  39. In response to AnnJo and Des,

    I understand what you are saying. However, any society that ultimately places profits above the good of people and the planet will ultimately self destruct. The financial crisis of 2008 was only the beginning. We’re not in ‘recovery’ now, and we will continue to see the effects of the pursuit of profit and weath above all else in the years to come. It’s not going to be a pretty picture.

  40. When buying a home we pay Realtors 5-6% of the sale price of a home for their expertise. We pay appraisers a few hundred dollars to give an opinion on the value of the property. We pay inspectors a few hundred dollars to let us know if theres anything wrong with the property. We require / trust all those experts …
    I think its pretty reasonable precaution to pay a lawyer a few hundred dollars to review the sales contracts.

  41. Jim – sure, some people would certainly benefit from paying a lawyer to review the documents and make sure they understand what they’re signing. But it shouldn’t be mandatory. You don’t have to use a realtor, and you don’t need to get an appraisal (if you’re not financing) to buy a property – those are OPTIONAL for people that don’t have the time, expertise, or desire to do the work of those agents on their own.

  42. @Other Jonathan: So, should it be OPTIONAL to get a doctor’s prescription before you can get certain medication? Should we just trust everybody to figure out for themselves what medication they need, or to decide for themselves whether they need a doctor’s advice?

  43. I don’t think that’s a fair comparison, as the wrong medication (or in improper doses) can literally kill you, and there are thousands of variables as far as how an individual may respond to different medications. Not so in bank loans. However, since you ask, imagine how inexpensive medication could become if it became available to all without a prescription (thus majorly expanding the market). And drug companies wouldn’t need to spend millions of dollars trying to convince doctors to sell certain medications (and doctors wouldn’t be compensated by drug companies for recommending a certain drug). (I am not actually advocating this, just a thought exercise).

  44. I’d be perfectly happy if a lawyers review of a mortgage contract was mandatory. Its the largest purchase most people make in their lives so I see nothing wrong with being legally protected.

    We voluntarily pay for all sorts of experts to help us buy a home so I don’t see why we’d object to mandatory legal aid considering that all the other experts are a waste of money if you screw it up legally.

    I don’t see an easy ‘one size fits all’ solution that makes complex financial transactions like mortgages work for everyone. You can’t simply pass laws to require a mortgage be simplified and have that work effectively. Its a financial burden to require everyone to pay a lawyer so thats not a perfect solution either. Our current system of simply letting everyone fend for themselves, trust the banks to do whats right and then sort out the mortgage fraud and predatory lending after the fact via multi-billion dollar bail outs has not proven very effective.

  45. @Other Jonathan: This isn’t something we need to imagine, because there are actual examples we can look at. For actual drugs that used to be prescription-only and now are OTC, does the price go down much? The one I am most familiar with is Claritin, and that is still pretty expensive. (Generic Claritin can be cheap, but that’s another matter.)

    @jim: For people who clearly don’t need help in understanding their mortgage contract (e.g., because they’re a real estate investor who’s been through the process a hundred times before), maybe it could suffice to pay $50 or so for a 10-minute appointment with a lawyer, just to get him to say “OK, you know what you’re doing.”

    Is there any provision like that in places where real estate lawyers are required?

  46. The difference between the bank and the grocery store is that at the grocery store, all the products have their ingredients and nutrition information presented in a concise, standardized way, so you have the information you need to decide whether a particular product is a good choice or a bad choice for you.

    Sadly, this isn’t true. Did you know that the government doesn’t require the FDA or USDA to inform us that we eat cloned meat (pork/beef)? Bill S414 was introduced in 2007 to vote on if it would be a requirement for proper labels on the cloned meat prducts/packages or to inform the consumer in some way, but Congress didn’t bother to vote on it. Now, here most of us are, 5 years later, as unsuspecting guinea pigs because of the government’s laziness and/or deceptiveness. Govtrack (dot) us is a site everyone should use. Much more helpful than waiting for news websites or TV to inform you of the truly important items being swept under the carpet.

  47. As I said, the system is not perfect. Nutrition labeling can go awry too – for example, if you have a package of something that contains 1.72 cups, where it’s obviously intended that you eat the entire thing in one serving, it might list the serving size as “1 cup” and say that the package contains “about 2″ servings. Then you have to get out your calculator (or be really good at mental math) to figure out what the nutrition numbers are for the whole package.

    Still, I would far rather have the food labeling regulations we have than none at all.

  48. @Joahnna: I confess, I don’t know anything about this. What is the “price” of a prescription dose of (say) Claritin compared to the OTC “price”? If you have health insurance, do your insurers or your employers somehow have to pay part of the former “price”?

    @Peggy: all too true, and has been for years. At the beginning of the 20th century, an English poet wrote:

    The greater part of anything you eat
    Is chemically poisoned. That is so.
    You sicken upon very doubtful meat;
    Your beer is made, I am prepared to show
    Of SO2 with too much H2O
    And that’s the reason you have stomach-cold.
    But these are things that people do not know;
    They do not know, because they are not told.

    There is Proclynasis as well as wheat
    And harmless Alum in the baker’s dough.
    Your salt is made from sweepings of the street
    The while the Peer who sells it you (what ho!)
    Presides by Statute over that Bureau
    Which legally allows it to be sold.
    But these are things that people do not know;
    They do not know, because they are not told.

    Still, it may not be a conspiracy. People who know more about these things than you or I do may have concluded, with a very tolerable degree of accuracy indeed, that eating cloned meat won’t kill you to any greater extent than eating uncloned meat will.

    Do you trust them? Suppose they told you instead that you had better stop eating uncloned meat and eat only the cloned stuff, because studies had shown that the risk of bowel cancer was 5% less in eaters of cloned meat? Would you know what to do?

    I wouldn’t either. That we are the first generation of the Information Age is beyond doubt. That we do not know what to do about it, any more than the first generation of the Bronze Age or the Industrial Revolution knew what to do about it, is also beyond doubt. But, as the philosopher well said, we will think of something.

  49. Jim, you say “We voluntarily pay for all sorts of experts to help us buy a home so I don’t see why we’d object to mandatory legal aid. . . .” You don’t?

    You do know what a law is, right?

    It’s that thing where, if you violate it, people with guns come to arrest you, imprison you, confiscate your property, and shoot you if you resist.

    In the case of a home purchase, it means that someone who otherwise could buy a house might not be able to, and someone who can read 12th grade level English and has reasoning abilities consistent with an IQ of over 100, has to pay for a service that isn’t really needed.

    In my opinion, a law should exist only when we’re willing to shoot or imprison someone who won’t obey it, not just because it’s a good idea, lots of folks would like it, and it allows adults to continue to function as children all their lives.

    And TLS, I hate to be the bearer of bad tidings, but the world you dream of, where everybody thinks first of others and only second, if at all, of themselves, is just that–a dream. Even the threat of burning for all eternity in the very hot place whose name probably would land me in moderation has not been sufficient to make compliance with the Golden Rule all that widespread.

    I’m not saying that striving to live by those theories is a bad thing, but expecting that society will ever permanently embrace them is simply unrealistic. In fact, the most kindly societies tend to be the ones that are richest, and they by and large didn’t get rich due to their kindness but due to their freedom to strive for a profit.

  50. #30 TLS @ 12:34 pm January 31st, 2012
    “If companies (and governments) were to put their focus on serving people instead of generating profit for shareholders, we’d all be a lot better off.” Dear TLS, You open a business which makes no profit for shareholders, and see how long you remain open. Except for Mother Theresa, people generally do things for their own self interest. If they are not getting paid, they tend not to go to work, or open a business to produce goods and services. Owning a profit generating business gives one the time and ability to do charitable work. Communist countries tend to have all people (except the government higer ups) living in poverty. Look at Cuba, once a prosperous nation with international trade and loads of tourist dollars keeping it afloat. Under the Communists, everyone is equal (poor) except the government officials. Not a good idea. Businesses are the engine which has powered the greatest, most just, most compassionate nation in the history of the world, and no, I don’t mean the Soviet Union! Because of American business, America, until recently with all this government meddling now hobbling our energy production, has been able to hand billions and billions of American dollars to poorer nations in a (generally) futile attempt to make things better in those countries. Countries without capitalism are poor countries. Driving out Capitalsim drives out the engine which produces the extra money to do constructive things and run social programs. Government produces no money, it merely confiscates the money of those who do productive things.

  51. Maybe the reason people don’t qualify for the refinance is that they didn’t qualify for the first financing. That is how the housing/mortgage industry got in the situation it’s in now. The government told them they had to let people who didn’t qualify for a mortgage receive one (because they thought everyone had the “right” to own a house) and the government (Feddie and Fannie) would buy the loans. Of course the banks were more than happy to lend money with the government backing it and now the whole fiasco is falling apart. All in the name of “fairness”

  52. @AnnJo, I’d love to hear more details about how you paid off your mortgage with your HELOC.

    I agree with a lot of these comments and don’t believe the concept of “people taking responsibility for their own actions” AND “Government creating rules and regulations to make a fair, level playing field” are mutually exclusive.

    Otherwise we’d have a society where smart people take advantage of dumb people…oh wait! ;-)

  53. No, banks are not your friends. But they are not evil either. They are a convenient place to store your money that protects it a little better than the mattress, and a place where you can earn some money by letting them play with it while you’re not using it. Or a place which will lend you some money, as long as you pay them for the privilege.
    That’s entirely reasonable.
    People who are responsible with their money don’t have a problem with banks, or with credit cards, or with mortgages or anything.
    The only people I see who complain about credit cards being evil, or banks preying upon the weak are the people who have utterly failed at responsibly managing their own money and want someone else to blame.

    People who got reasonable mortgages they could afford have been much less affected by any of the current problems. People who save money are not usually wiped out by an economic downturn. Shit happens, but stupidity happens a lot more often.

  54. Icarus, there’s nothing difficult about it. Because I’m self-employed and have income that varies wildly from year to year, for a couple of decades I’ve maintained a HELOC of over $100,000 to tide me over “just in case”. It usually had a zero balance, because whenever I borrowed against it, the first priority was to pay it off. Its interest rate was always higher than my 5.5% mortgage (between 7-9% usually) ntil 2008, when the HELOC dropped to 2.99%. At the same time, the rate on CDs I bought in my Roth IRA dropped to practically nothing so putting money there was pointless if I could get a better return elsewhere.

    After the 2008 election, it was clear to me that the HELOC rate would remain low most likely for at least four years, so I paid off the remaining balance on my home mortgage (and also a small remaining balance on a rental mortgage) from the HELOC. Then I continued making the same payments I’d been making on the mortgages to the HELOC, as well as other money I would have ordinarily added to my Roth IRA. The HELOC should be paid off this year.

    There was a slight risk that the HELOC interest rate, which is variable, would shoot back up, but given the economic and political picture, I judged that risk to be effectively zero. Alternatively, I could have sold gold to pay off the mortgages, but for the same economic and political reasons, I judged that option to be foolish. On both counts, I turned out to be right. Of course, if I’d been REALLY prescient, I would have borrowed the entire HELOC balance and bought more gold with it.

    I would have preferred that my country get itself back on a good economic path than that I profit from its failure to do so, but as of 2008, that was clearly not an option. I’m not sure much has changed.

  55. “The only people I see who complain about credit cards being evil, or banks preying upon the weak are the people who have utterly failed at responsibly managing their own money and want someone else to blame.”

    Really? You must not be looking very hard.

  56. It might be that those folks are just much more vocal about the evils of banks while more responsible people silently seethe. but I don’t go looking. I just hear from around me. And it’s a very rare claim that doesn’t come with responsibility on the complainer’s part.
    Sure, not everyone likes how banks do some things, especially on the macro scale, but the ‘evil’ screamers? Usually not about the banks.

  57. AnnJo, No. For the record I’m not suggesting that we should have government thugs beat up people, confiscate their property and throw them in a dark pit of a prison because they break any old law. I’m not sure why you got the idea… Thats now how most laws work and not how law enforcement operates in this country (with rare exception). I’m not supposing our nation should devolve into the middle ages. Keep in mind that there are various levels of laws with different punishments. You don’t go to prison and have your stuff confiscated if you jaywalk. So no, we don’t need to limit all our laws to only stuff we’re willing to shoot the violators over.

    I am not seriously saying we need to make it a law that mortgages are reviewed by lawyers. OK. Its just an option. It could work. Maybe its a bad idea. Whats the best way to keep idiots from signing crappy loans? Just let the banks screw people over cause that money *might* go to other customers and shareholders and fatten your wallet?

  58. Deruiter, “Because of American business, America, until recently with all this government meddling now hobbling our energy production, has been able to hand billions and billions of American dollars to poorer nations ”

    Really?

    Maybe you didn’t know that US oil production actually increased year over year since 2008?

  59. Kai, I think you’re right to a degree. THe people most upset with the banks are the people paying fees and high interest. But those people mostly got themselves into that mess. I don’t complain about my bank but I’ve never paid an overdraft fee and pay them no interest and my checking fee is waived. But we can still be empathetic to the plight of people who are in debt and paying bank fees,right? Its not like everyone in debt was a useless loser who deserves whateever banks do to them.

    There is some behavior by banks that is outright predatory. The overdraft fees that some banks were charging were simply not right. Yes people hit those fees because they accidentally exceeded their account limit. But that doesn’t justify the banks ordering the transactions and maximizing the fees so someone pays $100 in fees for going $5 over their limit.

  60. Some people get into debt because they look at the cost of a (house/car/education), and decide that it is worth borrowing money for, even at the fees charged. Those people might not love their banks, but I don’t usually hear them crying ‘evil!’.

    I do disagree with some things banks do, and i am in favour of regulations that make them work better and reasonably. The state of the Canadian banking industry compared to the American right now seems pretty good evidence that some government regulation can be beneficial.

    There just seems to me a big difference between saying “banks need to not structure with the intent of making it very simple to overdraft and be hit by the fees” and saying “banks are evil and they prey upon people by offering them loans on things they can’t afford when how could a person possibly be expected to know that on their own anyways if they big bad evil bank hadn’t made them???”

  61. @Kai, can you elaborate on what that big difference is? Other than that one has a tone that you find disagreeable and the other one doesn’t?

    There’s an excellent article by Paul Graham called “How to Disagree,” that you may find interesting. One of the points it makes is that if the worst thing you can say about an argument is that its tone is not to your liking, then you haven’t said much.

    And as a general comment that may or may not be relevant to you: I often notice that the people who say “Your arguments would get so much more respect if you just took a more polite/civil/measured tone” are the very same ones who don’t even hear the polite/civil/measured arguments at all. How does one win against such a person?

  62. I meant to indicate not primarily a difference in tone, but a difference between saying “the banking industry has some problems that should be fixed” with “the banking industry is evil and preys upon people”.

    I agree. Especially in text conversation, some people are hearing the tone in their head, and there’s little to be done about that.

  63. @AnnJo — that’s kinda what I thought you meant, thanks for providing details and sharing. Glad it worked out for you.

    I thought about doing something similiar with my near 0 balance HELOC but the bank moved first. Chase cut my line of credit in half and then froze it to only what i owed. I’ll bet it was your cleaver tactic that alerted them to smart peolpe like us working the system. thank you for that (kidding).

  64. I don’t think banks are evil in general. Thats just hyperbole. Its not just a matter of ‘tone’ if you’re calling someone/something ‘evil’.

  65. Johanna #66:

    And as a general comment that may or may not be relevant to you: I often notice that the people who say “Your arguments would get so much more respect if you just took a more polite/civil/measured tone” are the very same ones who don’t even hear the polite/civil/measured arguments at all. How does one win against such a person?

    The object of having an argument with someone who is impolite, uncivil, etc., should probably be to convince other people, rather than the unreasonable interlocutor.

    If ‘winning’ is your goal, and you define it with a metric such as AnnJo must admit that she is wrong about X, and that I am right, then you should probably choose another metric. I could suggest Everyone reading this argument should come away with a belief that AnnJo is wrong about X, and I am right, but instead I will suggest Most people reading this argument should come away from it having seen incorrect arguments from either side exposed as false, with a better idea of what the truth is, while both AnnJo and I learn something. That would seem to me to be the highest level of victory. If AnnJo cannot learn something, then that is her loss, not yours, and does not blemish the ‘win’ much at all.

    You are free to choose your own metric, of course, but I can see where some metrics for a “win” may be hard to achieve against a particulary unreasonable person.

    /no offense meant to AnnJo for presenting her as Johanna’s interlocutor…

  66. I don’t think banks are evil necessarily… but the phrase “predatory lending” isn’t called that for no reason. Banks and other lenders tell people they can afford more than they actually can afford… and those people literally buy into that since it’s what they want to believe. The lenders PLAN on many of those people defaulting – instead of telling them the truth about what’s affordable. Predatory lending doesn’t happen as much now, but it doesn’t mean banks aren’t trying to figure out other (tricky, slightly-dishonest-but-legal) ways of getting bigger profits.

    I don’t view big banks in much different light than I view payday lenders. Most of the time, neither does anything illegal… but I don’t view either as particularly beneficial to society.

    Oh, and I’d put most car dealerships beneath both banks and payday lenders in terms of integrity and value to society…

  67. @MattJ: Um…what?

    “The object of having an argument with someone who is impolite, uncivil, etc., should probably be to convince other people, rather than the unreasonable interlocutor.”

    First of all, that’s not the situation I’m describing. What I’m describing is an argument with someone who’s accusing *me* (or someone else) of being impolite, uncivil, etc.

    Second, not all of these exchanges take place on the internet. There is also this thing called “real life,” in which people talk to one another without the whole rest of the world looking on.

    Third, even if the whole rest of the world were looking on, sometimes one person needs or wants to make herself heard to another particular person, so redefining her metric in the way that you suggest is not much help. Thanks for your *concern* though.

    Fourth, my question was mostly rhetorical. I’m not really asking what you think I should do – I can take care of myself. I’m saying that if you (meant generally) find yourself using the “tone” argument as a way to silence or ignore people without answering them properly, you should stop it.

  68. For what it is worth, I heard on Dave Ramsey yesterday that Citibank is now sending out 1099s on the airline miles, so that you have to pay income taxes on them even if you never redeem them. and 78% of those miles are never redeemed.

    That might make you reconsider those credit cards.

  69. First of all, that’s not the situation I’m describing. What I’m describing is an argument with someone who’s accusing *me* (or someone else) of being impolite, uncivil, etc.

    Point taken. Still, you are describing an unreasonable interlocutor, if it is someone who will not listen when you are being civil, and will ignore you when you are uncivil, due to your incivility.

    Second, not all of these exchanges take place on the internet. There is also this thing called “real life,” in which people talk to one another without the whole rest of the world looking on.

    My mistake for misunderstanding your example, then. Your words describing the person’s objection: “Your arguments would get so much more respect”, rather than “I would respect your arguments more” seemed to imply an audience.

    Third, even if the whole rest of the world were looking on, sometimes one person needs or wants to make herself heard to another particular person, so redefining her metric in the way that you suggest is not much help. Thanks for your *concern* though.

    “I can see where some metrics for a “win” may be hard to achieve against a particulary unreasonable person” — It seems we already agree on this point.

    Fourth, my question was mostly rhetorical. I’m not really asking what you think I should do – I can take care of myself. I’m saying that if you (meant generally) find yourself using the “tone” argument as a way to silence or ignore people without answering them properly, you should stop it.

    If someone (even rhetorically) asks What is to be done about X?, and you think you have a useful suggestion, then you should give it to them. I’m sorry if you don’t find my suggestions useful, but perhaps someone else will. (we do have an audience, after all)

    As for your last statement, I can sympathize with someone who tunes out or ignores an argument because of its tone. I avoid certain corners of the internet, as well as all of talk radio and cable news for that reason. Silencing someone because of their tone, however, seems to be a different beast altogether.

  70. Johanna, this whole discussion reminds me of the old saying, “never argue with an idiot. The people watching may not be able to tell the difference between you.

    When my husband and I used to do pro nuclear power presentations in New York City in the 1980s, we were not even out to change any minds. Our goal was just to open a few. That was realistic. Not sure if we succeeded, but we had fun!

  71. MattJ, none taken.

    Icarus, the HELOC loan papers that most people don’t read usually allow the bank to reduce the line of credit if changed circumstances render the bank’s security less secure. That could be that the borrower’s credit score dropped considerably but, more likely in your case and many others I’ve heard of, it would be because the drop in house values changed the loan to value ratio too much. If your house is worth $200,000, has a $100,000 mortgage and the bank is willing to give you a $50,000 HELOC, it has a $50,000 cushion of equity. If that cushion goes away because the house is now worth $150,000, even someone with impeccable credit and a perfect payment record is going to see his/her HELOC credit line reduced.

  72. Slccom said : “Dave Ramsey yesterday that Citibank is now sending out 1099s on the airline miles”

    You could get a 1099 if you sign up and get a big pile of bonus miles. Thats free money and legitimately taxable.

    You should NOT get a 1099 or have tax bills simply for getting rebates from using a rewards card.

    The difference is between free money and rebates. Free money is taxable. Rebates are not considered taxable income.

  73. Yeah, well. I looked again and found that the 1099s are going out for airline miles awarded to their bank accounts, not credit cards. Sorry about that!

  74. @TLS – I’ll be the first in the thread to say that I agree with you completely. Imagine a world in which people were more important than money.

    Not only is it clear that our society values money above people, but it seems that most people think that is ok. I think it is sad that we live in a world in which this is the case. Money is just a tool, and ultimately its value is whatever we decide it to be. Unfortunately, as long as we, as a society, value money so highly we can’t expect businesses and governments to value it less.

  75. Step 1: Imagine a world in which society values $5 more than the life of a person. Pretty horrible.

    Step 2: Imagine a world in which society values $5,000,000,000 more than the life of a person. Absolutely unsustainable.*

    Step 3: Come to a reasonable compromise in your own head, and try not to be too outraged when the compromises other people reach don’t exactly match the one you’ve chosen.

    *There’s a child, lost in the woods, and it’s going to be well below freezing tonight.

    Reasonable response: Have the police, fire departments, and other rescue agencies coordinate an effort including whatever volunteers can be rounded up to find the child before the worst happens.

    Unreasonable response: Go door-to-door in the nearby town of 100,000, asking for volunteers to help comb the woods. If people won’t come, pay them! Spare no expense! And why don’t the rescue agencies already have wide-area infrared sensors to detect people lost in the woods? For that matter, why don’t they have multiple search aircraft with on-staff pilots, ready to respond at a moment’s notice? There are lives at stake!

    Full disclosure: I am a volunteer for two such rescue organizations: One that specializes in cave rescue, and another that does cave rescue as well as urban and wilderness high angle and rough terrain rescue. We train every Tuesday night from 6-9, in addition to taking regular classes from the Fire College or the NCRC. We are not well-funded, but we’re relatively well-staffed by dedicated volunteers.

  76. Jonathan and TLS – in the context of which you speak, there’s no such thing as “society”, only individuals. When you say that society values money over people, the old “people, not profits” slogan, it’s really a meaningless platitude.

    Money is only valued by anyone for what it can do in his/her life, which means that what they’re really valuing is some people, or at least some person – themselves – over other people. Whether I prefer to put the next $100 I get into savings for my future security, the purchase of something to enhance my current life, or even charity, in every instance the value of the money is in what the money does for people – me (including my self-esteem, when it comes to charity). Even when voting on tax measures or politicians who espouse certain positions on taxes and spending, I’m still making the choices based on my values about my life and other people’s lives, not the belief that money itself has some intrinsic value.

    It’s easy to demonize inanimate objects or concepts like money or profit, but it always boils down to whether you prefer that Person A get the money or Person B get it. It’s never a choice between money or people, but between some people and other people.

    You resent Exxon/Mobil’s profits? Exxon/Mobil is a piece of paper registered in the office of some Secretary of State somewhere (probably Delaware). That piece of paper cares nothing about money. What you really resent is that certain PEOPLE get Exxon/Mobil’s profits – its shareholders, employees, suppliers, landlords, etc. – when you think it ought to be different people – maybe its customers, government employees, welfare recipients, or you.

    You can wish all you want that everybody else’s choices (“society’s choices) about who gets what amounts of money be exactly the same as yours, but it’s never going to happen.

  77. Re: #81 – I should have said “DO you resent Exxon/Mobil profits?” Neither of you mentioned that you do.

  78. “it always boils down to whether you prefer that Person A get the money or Person B get it”

    Sometimes it boils down to ethics and morals and doing what is right versus doing what is wrong. Thats not just about picking which person you want to have more money.

    If Exxon were murdering people for profit then that would clearly be wrong and would have nothing to do with who gets the money and where the money comes from.

  79. I don’t resent Exxon’s profits or a banks profits as long as they play by fair rules, obey laws and are generally ethical.

  80. Jim, I was commenting on the notion that “our society puts a higher value on money/profits than on people.” I concluded this meant something other than that people should not be murdered for money, since we already have lots of laws against murder; society has spoken quite clearly on that.

    As far as whether they “play by fair rules, obey laws and are generally ethical” – well, the content of those laws, rules and ethical standards are often going to be measured against whether you are happy with the resulting distribution of the money. Is it “ethical” to lay off employees in order to increase profits? The answer to that is going to be determined by your preference for whether employees get the money involved or shareholders do. Is it “fair” to locate your business in a right-to-work state? Is an 8% profit margin “fair” (like Exxon’s)? What about a 26% profit margin (like Google’s)?

    I assume you and I would agree that lying in your annual reports and filings (like Enron did) or murdering whistleblower employees (as businesses are always doing in movies), is unethical, unfair and illegal. But we might not agree on the questions I raised above.

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